LONDON/HONG KONG (Reuters) - The Swiss franc shock reverberated through currency trading firms on Friday, dealing the heaviest blows to those catering for small-scale retail clients and forcing regulators to take a closer look at the sector.
Some major banks also lost out when the Swiss National Bank lifted its cap on the franc without warning on Thursday, including Britain's Barclays which lost "tens of millions" of dollars, an industry source said.
However, the scale of losses in the much smaller retail sector raised questions about its role in the high-octane world of foreign exchange.
In the past 15 years, retail currency trading has grown quickly, attracting individuals staking their own money with long trading hours, low transaction costs and the ability to take on huge risks for a relatively small sum.
Retail currency trade makes up nearly 4 percent of daily spot turnover of nearly $2 trillion, the latest survey from the Bank of International Settlements shows, having grown from almost nothing in the 1990s.
This small share means the sector poses limited risk to the financial system but retail brokers are much more vulnerable to big losses than banks.
Retail broker Alpari UK filed for insolvency on Friday.
The move "caused by the SNB's unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity," Alpari, the shirt sponsor of English Premier League soccer club West Ham, said in a statement.
"This has resulted in the majority of clients sustaining losses which exceeded their account equity. Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm that it has entered into insolvency."
Online trading-services provider London Capital Group Holding put its franc-related losses at up to 1.7 million pounds ($2.6 million).
Regulators in New Zealand, Hong Kong, Britain and the United States said they were checking on brokers and banks after reports of volatility and losses.
The franc surged as much as 40 percent to a high of 0.8500 per euro after the Swiss central bank lifted its 1.20 per euro cap.
New Zealand foreign exchange dealer Global Brokers NZ Ltd closed due to hefty losses. The national Financial Market Authority said it would "be seeking assurances that the client funds have been protected and segregated".
The Hong Kong Monetary Authority said it was "following up with the banks on their practice in this regard ... to understand the implication, if any, but we would not comment on the situation of individual banks."
Britain's Financial Conduct Authority said it was talking to Alpari, while the U.S. National Futures Association said it was monitoring the foreign exchange brokers it oversees.
New York-listed FXCM Inc, one of the biggest platforms catering to online and retail traders of currencies, said it may be in breach of some regulatory capital requirements after its clients suffered $225 million of losses.
Its shares did not open in regular trading after having fallen nearly 90 percent in pre-market hours.
Canada-based foreign exchange broker OANDA said in a statement it "will pardon our clients' negative account balances associated with this market event" and would not "re-quote or amend" clients' trades on the Swiss currency.
But Denmark's Saxo Bank, one of the biggest players in retail foreign exchange trading, said late on Thursday it would potentially set different rates for its clients' transactions.
Saxo Bank's chief financial officer Steen Blaafalk told Reuters some clients had suffered losses, but the bank was well capitalised. Retail investors, some of whom face huge losses, protested when Saxo said on Thursday it might set different rates for transactions.
Lawyers said this could be contested.
"I think there will be litigation and disputes over automatic close outs," said a financial services lawyer.
Hong Kong media reported clients of HSBC Holdings were able to buy the Swiss currency at below-market rates for several hours through its online system, making several thousand dollars in profits on the trades.
HSBC said online foreign exchange trading for the Swiss franc "is currently operating normally and we will investigate reports that customers could trade at old rates initially after the cap was lifted."
($1 = 0.6619 pounds)
Additional reporting by Michelle Chen, Andrew Winterbottom, Huw Jones, Alasdair Pal, Lincoln Feast and Elzio Barreto; Editing by Ruth Pitchford