Switzerland’s national bank did more than just put the cat among the pigeons when it removed the 1.20 floor on EUR CHF trading yesterday. Indeed, the events which ensued have called into discussion the risk management strategies of many FX industry participants.
In this LeapRate Guest Editorial, ThinkLiquidity‘s Managing Director Jeff Wilkins, a widely recognized industry expert on risk management in today’s world of FX, explains how to go forward from here, and the importance of talking a calculated approach toward every aspect of business.
The catastrophic events unfolding from yesterday’s SNB decision will forever change the footprint of our industry. When you see giants fall as they have, people begin to question everything.
Every single broker should focus on their risk management strategy. In the coming hours, there will be more bad news out of very large FX companies. The clock is ticking and there will be vultures swooping in at the 11th hour. This industry has become so competitive in terms of attractive offers for clients; companies have taken their eye off the ball when it comes to risk. The FX industry may be a microcosm if the overall financial market place, but the focus remains the same.
This is a wakeup call for every FX company in the industry. I cannot stress proper risk management enough. What brokers need to do right now is take a step back and reevaluate everything. This SNB decision and CHF reaction was unprecedented, but the job of a risk management team is to prepare for the unexpected.
There will be clear winners and clear losers from the recent events, but as a whole the industry will suffer through reputational damage. This is a very unfortunate situation because regulators simply will not understand the complexity of why or how this happened. They will attack this with a hatchet and not a scalpel, and there will be further damage. The very reason some of these giants have fallen is due to capital adequacy restriction compliance affecting how these brokers manage their risk.
As an industry we all need to band together right now. These events will forever be remembered as the catalyst of how our industry will change in the weeks, months and years to come.
This is a Guest Editorial by Jeff Wilkins, Managing Director, ThinkLiquidity