View from within: How will FX companies avoid a second “Black Thursday” if Greece exits EU? – LeapRate Investigates

Europe’s economy has been an epicenter of volatility over recent months, with national debt to GDP ratios among mainland European nations at very high levels, and, more significantly, Greece’s imminent insolvency and potential inability or unwillingness to pay its large debt to the European Central Bank.

Switzerland shocked the entire global financial services industry in January this year, when it removed the 1.20 floor on the EURCHF pair in order to protect itself against a failing Euro, resulting in unprecedented volatility and some severe casualties which manifested themselves in FX companies and prime brokerages in the retail and institutional sectors being exposed to negative client balances which in some cases were so vast that companies did not survive.

Greece owes the European Central Bank over a third of the bank’s capitalization and has sent several clear messages that it is not likely to repay the debt or introduce austerity measures to go some way toward setting itself on an even keel. Indeed, this weekend, with capital controls in place and banks closed, citizens lined up at ATMs to withdraw cash, and Prime Minister Alexis Tsipras having requested a referendum on the austerity proposals.

Should Greece exit the Eurozone and the European Union, leaving its 190 billion euro debt behind, there is a high likelihood of extreme market volatility once again.

Whether the exit will be good for Europe long term despite an initial unpaid debt is one matter, however how FX firms intend to manage another impending event which could cause severe volatility similar to that caused by the Swiss National Bank’s removal of the 1.20 peg on the Euro in January is a very serious matter indeed.

LeapRate investigated the perspectives of FX companies and prime brokerages in order to ascertain their position and what action will be taken to avoid any casualties that range from damage to companies and customers, as well as how the risk management will be conducted in order to maximize the opportunities that can be obtained from high volatility as well as mitigate any dangers.

Paul Orford, VP of Business Development at Cyprus based prime brokerage TopFX elaborated on how risk can be mitigated should there be excessive volatility: “Since the SNB debacle happened several months back, it has been a wake up call for many in the industry. As an institution we feel we have adequate and relevant protection, with relevant structural changes being made since January.”

Mr. Orford continued “The events of last January acted as a wake up call to a lot of people in that you can face of dire circumstances if you have not amended your risk policies.”

With regard to whether the debt incurred by the European Central Bank would be a worthwhile encumbrance for Greece to exit the Eurozone and not be a continual burden to the European economy, Mr. Orford explained “There are a couple of problems facing the Greek people. They voted for the dream and woke up to reality, in that the debt was not going to magically disappear via voting a specific political party in.”


“Further to this, there still appears to have been no radical change in the behavioural culture of the institutions which got them into this situation in the first place.”

“There will be increasing pressure from Obama to make sure all parties involved feel they have had a positive outcome as Greece continues to look to Russia for assistance.It is quite clear that the US foreign policy based on domino theory is still very much as relevant today as it was 40 years ago” concluded Mr. Orford.

Jansen Khoo, Head of Risk and Prime Services at Blackwell Global explained to LeapRate “Over at Blackwell Global, we are anticipating volatility in the coming weeks with regards to the Greek woes.”

Mr. Khoo continued “As such, we are increasing margin for some clients and capping their net opening position for intra day/overnight. This is to make sure they allocate more of their deposits for market swings rather than hold bigger positions.”

“The Risk team is monitoring all clients more closely to evaluate if they need to adjust margin/ NOP requirements. We are also talking to the liquidity providers so that we are aligned with them to foster mutual understanding of the situation on the buy and sell side” continued Mr. Khoo.

Saad Sidat, Product Manager at Capital Market Solutions explained to LeapRate “I think brokers nowadays have become really careful when hedging themselves with the liquidity providers, especially after what happened with Swiss National Bank in January.”

He continued “I personally believe the brokers will increase margin requirements and will start charging margin on hedged positions as well. Other than that I don’t think there would be any siginificant impact.”

Mr. Sidat then provided a specific example “Let me give you an example of the broker I work for. This company has not taken any action because it already provides a maximum leverage of 100:1. If the circumstance prevails, then the firm might decrease it to 50:1.”


With regard to execution models, Mr. Sidat told LeapRate that “since the Swiss National Bank event, I don’t believe in STP anymore, but I do believe in hedging. I think one to one is not viable, and it is better to internalize or warehouse everything and just cover the NOP in the market if need be.”

An institutional FX provider in London which preferred to remain anonymous explained that its risk management team is keeping an even closer eye on margin utilization and is asking clients to be sufficiently funded in case of extreme volatility caused by an exit from the Eurozone and subsequent default by Greece, however the firm has no plans to raise margins at the moment, but is keeping an open mind with regard to what may happen this and next week, with willingness to adapt its stance accordingly.

Anya Aratovskaya, VP Institutional Sales at Fortex and Advanced Markets explained to LeapRate that “Forex Brokers are more likely to STP flow to mitigate their trading risks. We already noticed that many brokers reduced leverage for the certain groups of clients. Some were actually personally calling their key account to make sure they are aware of the risks associated with the coming volatility.”

“I can’t really comment on whether Eurozone will be a better place for business if Greece is out , the issue is somewhat complicated. However, it is clear that there are more political changes that are coming soon and this is not nessesary bad for the slow summer time in FX industry” concluded Ms. Aratovskaya.



Due to the continued uncertainty surrounding the Greek economic crisis, and the most recent announcement that both Greek banks and the Athens Stock Exchange are to remain closed for the whole of next week, are monitoring the situation very closely and will be responding to any changes in market conditions concerning liquidity and volatility, anticipated or real, by tightening trading conditions where required.

Whilst the Athens Stock Exchange remains closed for the entirety of next week, along with all of the banks in Greece, LeapRate’s research depicts that many FX companies are monitoring the situation very closely and will be responding to any changes in market doncitions concerning liquidity and volatility by tightening trading conditions where required.

LeapRate will continue to provide ongoing news with regard to this matter as it progresses.

Photographs: Top Right; Paul Orford, VP Business Development, TopFX. Lower Left; Saad Sidat, Product Manager at Capital Market Solutions, Lower Right, Anya Aratovskaya, VP Institutional Sales, Fortex and Advanced Markets

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