March 5, 2015 / 12:21 PM / 3 years ago

CORRECTED-Online trader IG jacks up franc margins, clients call foul

(Changes headline and first paragraph to make clear IG is a platform for trading a range of products, not just currencies)

By Patrick Graham

LONDON, March 5 (Reuters) - Financial trading platform IG Group, following losses from the Swiss franc’s 40 percent surge on Jan. 15, has slashed the credit it extends to clients on currency trades, according to emails sent to clients.

IG has increased the amount clients must put up against trades from between 1 to 3 percent of the value of the trade to up to 30 percent for large amounts. It also is telling clients to hold more margin on positions where they have set a “stop loss”, a standing order to close the position.

IG says this is to guard against situations where the market moves too fast for the company to find a buyer for such orders, a situation known as slippage.

“The Slippage Margin is an additional amount to protect you should the market gap through your stop loss,” IG said in an email sent to a client, who declined to be identified because of ongoing discussions with the company. IG confirmed it was an email from the company to clients.

“As of 7 March, we’re changing the slippage factor we apply, which may result in the margin requirement for positions with non-guaranteed stops increasing.”

Representatives of a group of IG clients resisting payment of losses incurred on the franc trade said that the changes showed IG was acknowledging it had been wrong about the risks of its platform not being able to close positions quickly enough if the franc ceiling were removed.

The margin increases apply to a number of pegged or otherwise controlled currencies, including the Danish and Czech crowns, Hong Kong dollar and the franc, as well as a wide range of emerging-market currencies.

The highest margin on the franc is now 30 percent, or leverage of just over 3 times. It had been 3 percent before Jan. 15. Smaller franc trades carry margins of 5 percent, up from 1 percent, or 100 times leverage.

“With such huge margin hikes, IG are now admitting they were completely wrong about their risk of platform slippage and its impact on customers,” one member of the group said in a joint letter to Britain’s Financial Conduct Authority.

“The margins under the new regime would have been more than my entire net worth -- none of us could possibly have put on the same trades today.”

IG’s disgruntled customers, among other things, argue that the company misled them about the performance of the platform and what they could expect from their stop losses.

“Why are IG making such dramatic changes now? Because they can see they were completely wrong about their ability to trade out of our risk in a volatile market,” the client group said in the same letter. “And yet they still expect us to pay for their operational failures.”

A spokesman for IG declined to comment on the content of that letter. The company says that its systems operated as planned and that any losses were the result of a disorderly market in which it made its best efforts to execute client orders.

IG said in late January it faced a bill of up to 30 million pounds because of the franc’s unprecedented surge. That broke down to 12 million pounds of market exposure and 18 million pounds of client exposure.

It later said it was seeking payment “as promptly as possible” from a group of 327 clients who had debts worth more than 17 million pounds. Its stock price has fallen 1.1 percent since the open on Jan. 15, against a rise of 8 percent in the FTSE 250. (Editing by Larry King)

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