Saxo changing fill levels for SNB move

http://www.investujeme.cz/vlci-ze-saxo-street/

(use google translate)

http://www.forexcrunch.com/some-brok...tive-balances/

well said again see a good trader

Some good articles here:

http://www.peres-partner.com/saxo-ba...-margin-calls/

and

http://www.anwalt24.de/beitraege-new...ulenzen-sitzen

They are in German, but turn on the translate, and you can see that even the lawyers are saying that whatever Saxo is doing has no legal basis.

http://www.de.sharewise.com/finanzna...EOPOLITICALBIZ

From Saxobank's wiki (https://en.wikipedia.org/wiki/Saxo_Bank):

Massive losses in trading of CHF in 2015[edit]

On January 15, 2015 09:30 GMT, the Swiss National Bank gave up its commitment to defend a EUR/CHF floor of 1.20, the exchange rate of EUR/CHF dropped below 1.20 [56]. Investors selling CHF (and buying EUR or other currencies) at Saxobank exited their position after stop sell orders were filled or in an automatic forced exit once their margin fell below of requirement.

Amending clients' transaction prices 12 hours after deals done

Despite its clients saw their short CHF positions exited on their trading platforms with email notifications (for the case of margin stopped-out), 12 hours later, Saxobank announced to change the price of the filled orders according to two time frames. [57]

1. For executed fills that occurred between the times of 09:30:00 to 09:41:30, a EURCHF price of 0.9625 is applied, and for executed fills that occurred between the times of 09:41:30 to 10:01:00, a EURCHF price of 0.88 is applied.
2. For CHF pairs other than EURCHF, the rate is calculated from the EUR exchange rate and the currency.
3. For FX options executed, Saxobank amended the option price based on the new spot reference and observed volatility surfaces.

Since the EURCHF prices of 0.9625 and 0.88 were lower than the prices Saxobank quoted on its trading platform to clients for order execution after the Swiss National Bank announcement, the amended prices resulted in worse transacted price for its clients exiting their short-CHF positions, and as a result meaning bigger losses to the clients.

On January 23, 2015, Saxobank reported that due mainly to negative client balances on which it may not be able to collect, the bank may be forced to take a loss of up to DKK 700 million (about USD 107 million), which is about 26% of the total capital of Saxo Bank A/S. Taking the estimated maximum loss into account, its capital would drop to DKK 1.97 billion. [58]

Complaint from clients on Saxobank amending deals

The CHF movements resulted in massive losses, in particular negative account balances, for many retail investors in different FX brokers. However, the treatment in different brokerages were largely different. [59] Major US brokerage FXCM forgave negative account balances of retail clients, which represented 90% of the negative accounts and 40% of the total debit balances owed. [60] Some brokerages such as Oanda, Dukascopy and Forex.com were among the major brokers which announced forgiving clients’ negative balances.

In contrast, Saxobank’s action of amending deals forcing larger negative balances of clients resulted in complaints. [61] Besides heated discussions seen over forums such as forexfactory.com and elitetrader.com, some clients formed groups such as “Saxobank Cheated Users Group” [62]to prepare for legal action against Saxobank. And Denmark-based Andersen Partners is one of the law firms known to represent clients against Saxobank in a class action[63].

A Vienna-based company, Censeo Asset Management, offered its clients a Saxo-brokered franc product which resulted losses. It announced that it cannot recognize the lawfulness of Saxobank’s action and would help its clients challenging Saxo’s repricing.

On January 29, 2015, the Danish Financial Supervisory Authority said in a statement that it is in close dialogue with Saxobank and will require the bank to provide a detailed report of the actions taken during and after the incident. [64]

Saxobank’s role as a market maker

Unlike its brokerage business in equity and futures, which are exchange traded, Saxobank makes prices on FX spot, forward and options and let clients to trade on the prices it quoted. On this basis, Saxobank acts as a principal (and not an agent) to the clients and deals done were considered final once the transactions were completed. Without clients’ consent, amending the prices of transactions done caused a lot of controversy. Saxobank’s CFO and Head of Risk said in an interview, “It’s not unlikely that we’ll face legal challenges”. [65]

Danish lawfirm representing us: http://www.andersen-partners.dk/en/content/645


I would appreciate any comment on my positions:

1) 200000 eurchf, stopploss order 1.2008. Executed at 1.2005 10.30.45CET
2) 200000 eurchf, stopploss order 1.2007. Executed at 1.2004 10.30.45CET
3) 200000 eurchf, stopploss order1.2007. Executed at 1.2004 10.30.45CET
4) 200000 eurchf, stopploss order 1.2003. Executed at 1.2000 10.30.46 CET

Re-qouted at 0.9625 later.....
br

Just realise that Saxobank's wikipedia page got removed a lot in the new addition (as read from above) regarding Saxobank's massive loss (well as it is about a quarter of Saxobank A/S equity) and its dogmatic approach to manipulate clients' transaction prices.

So if you say they don't care their reputation - it is wrong. You cannot find the treatment of client's CHF trades ín their press release. And there are some nice helpers who play down their impact in the newly edited wiki page.

And ironically they even say they have strong capital and more clients after the event. I just want to be conservative and raise a few questions:

1. Did Saxobank hedge its CHF exposure when retail clients long a lot of EURCHF? If yes, did Saxobank got bad prices and it has to pay (before it collects anything from its retail clients).
2. Did any option buyers gain a windfall from Saxobank? This can be a bigger hit to Saxobank than spot / forward because of the extra leverage that option can provide. If yes, again, can it afford to pay?

In contrast, we have more transparency in FXCM because it is listed and it gets the capitalization it needs, and the US watchdogs are more scary. I have reasonable doubts on Saxobank's financials and the laid-back Danish FSA.

Some update following Saxobank manipulating clients' completed transaction prices, from Bloomberg.


(BFW) Saxo Clients Retain Danish Law Firm to Press Case Against Bank

+------------------------------------------------------------------------------+

Saxo Clients Retain Danish Law Firm to Press Case Against Bank
2015-02-18 07:16:23.508 GMT


By Frances Schwartzkopff
(Bloomberg) -- More than 20 Saxo Bank customers have retained Andersen Partners to pursue class action lawsuit against bank, Soeren Stig Hansen, an attorney at the firm, says in e-mailed statement.
* Claims of both Danish and foreign investors total $12m:
Andersen Partners
* Saxo spokesman Kasper Elbjoern declined to comment
* NOTE: Jan. 30, Saxo Told to Hand Franc-Trade Details to FSA
Amid Complaints


For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Frances Schwartzkopff in Copenhagen at +45-33-457-125 or [email protected] To contact the editors responsible for this story:
Tasneem Hanfi Brogger at +45-33-457-130 or [email protected] Frances Schwartzkopff

http://www.bloomberg.com/news/articl...s-unacceptable

“We think they’re not allowed to do what they’ve done -- that their agreement with customers doesn’t give them the right to do it, and so we dispute this way of treating customers and of course ask them to change that,” Ravnsbo said in an interview.

just found this by accident .. good i just tried demo not real account. BahBah,

Saxo Bank is cheating customers after SNB removed EUR/CHF floor( http://www.elitetrader.com/et/index....-floor.289242/ )

Saxobank, as well as other FX Brokers, are bounded by the very basic principal of "contract" in contract law. They make prices which are tradable on clients' trading platform, that is an "offer". When client hit on the trade button or stops triggered according to their tradable prices, this is an "acceptance". With "offer" and "acceptance", a contract is sealed. Saxobank has no right to change the particular of the completed transaction without the consent of the clients.

Amending clients' prices in a completed transaction has no legal power, and thus they have no rights to go after clients based on their amended prices. On the other hand, doing so is in breach of the contract (original price transacted) and detaining clients' assets based on the false-claim of negative balances is illegal and clients have the right to sue Saxobank.

Well said. But these inglorious bastards say market conditions were so extreme that their systems produce false prices and confirmations.They should be removed from the market forever.

http://www.forexlive.com/!/did-saxo-...fills-20150127

Saxo Bank certainly didnt do its EUR/CHF traders any favours
In documents ForexLive published yesterday, Saxo Bank attempted to explain their price fills on the EUR/CHF breakdown and that they would be prepared to take legal action to recover negative balances.
Saxo officials also confirmed that they re-priced retrospectively in other reports.
Im no lawyer but there are parts of it that stink.

1. They are averaging out trades to customers based on where Saxo got filled

1. So where were Saxos stop orders prior to the move that covered their risk, and where did they get filled?
2. If they had no prior orders then they must have been scrambling to get filled during the move. On a risk basis thats outrageous. On an ECN basis thats even worse
3. If they did have stop orders in EBS then as far as Im aware EBS is first in, first dealt. Id be pissed if I had a stop in place from 3 years ago that got filled at the same average or worse than someone who automatically had their positions closed. Theyve given 3 levels of prices so Id be expecting to be filled at the higher one if my stop was placed a long while back

2. They are synthesizing fills for other Swiss pairs
http://az705044.vo.msecnd.net/20150127/Saxo-CHF1.png

Are you kidding me?

It sounds like Saxo didnt actually trade in the market for other Swiss pairs but made up fills based on the averages for EUR/CHF? I thought Saxo Bank was an ECN?

If that is the case then I suggest that Saxo clients read up on their T&Cs to see whether Saxo have detailed that as a policy in filling client orders. If its there then it sucks big time. The issue is that if they dont fill clients in the market then how did they fill customers? One possibility is that they took the other side of the trade on themselves so in effect buying Swiss pairs at the bottom of the market. Thats not the work of an ECN.

How its supposed to work

For clarity heres how it works, from my days in the pits, and from a certain former interbank dealer, who Ive checked with and who knows his onions too.
If you cant make a trade in an illiquid contract/currency then you can leg the trade. In currency terms, for trading USD/CHF you would trade the most liquid pairs, i.e EUR/CHF and the opposite way in EUR/USD. That gets you a USD/CHF trade. If you are a market maker you could also take the trade entirely on your own book and fill the client, or you could leg half the trade in the market and take the other side on your own book, if it was in your favour.
Now, in the SNB move, to sell USD/CHF, a trader would have sold EUR/CHF at the earliest opportunity and then bought EUR/USD. Now remember that EUR/USD was falling also it would have potentially meant a better entry point for that leg. Trading like that is an art form rather than a precise science but it can improve a position immensely if played right.

IF they filled customers that way then they are royally screwing people over as they are trading in the market for some positions and not for others and potentially not in the best interests of their clients. Again though, thats a matter for the T&Cs
This Saxo issue is important because it is giving us the first idea on how fills were accomplished over that period and how brokers may have been pricing trades, something that has not come out in the public eye from other brokers. This is one instance though and not a complete template to use for others. Other brokers use other liquidity providers and even using the same ones could have been filled at different levels.
What Saxos statement does do is raise more questions than it answers. It questions their risk strategy for Swiss trades as it seems they didnt have stop orders in the market for customer orders, according to the statement on pricing.

I want to make clear once more that these are questions I am raising because some things dont add up in my experience of being in markets for as long as I have. This isnt a direct attack on Saxo and they may well be right in everything they have done and played this by the book and their terms and conditions. They have put their response out and Im passing comment on it. If anything, the least I hope to do is to try and explain how things work so that people can form their views and have an idea of what to look for in their own personal situation, if affected by the SNB move.

Hi Ryan,

I got the information the Saxo did not work with EBS but "other liquidity providers". They say that they took in many orders around 9.30-9.31 from their customers - that they confirmed by mistake - and then they were not able to put that quantity on the market. Their argument is something like that. Implicitely they say that they did not forward any stop losses to EBS or to anywhere else. As an MM I think they have the possibility for that, but then please bear consequences.

It is higly likely, that they were playing so far on their own with succes without proper risk management, but it did not pay off on 150115 very well. Instead of going bankrupt they selected the other path, pulling a line (0,96xx) where they are still OK reaping the funds (stocks bonds) of their customers and trying to defend this by lawyers.

Please bear in mind that they had almost the highest margin requirement for EURCHF trade, and if that was covered with stocks or bonds collateral (that they calculted with a strong 50% haircut as a margin) as it was general situation instead of cash than they had 15-20% cover for each trade (I mean 5-8x leverage only)! If they confirmed lets say 20% loss on an EUR/CHF trade with the requote, than almost 100% their virtual loss has been covered by the collateral. (Trust it was understandable.) Looks like this isnt civil law but rather criminal.


I wonder why they still have any customers left, if one is able to read with a saxo account, first thing in the morning is to remove all funds from saxo.

http://www.garp.org/risk-news-and-re...?newsId=129462

"
If SNB made a crisis on January 15, 2015, then Saxo Bank made itself (and its clients) a bigger crisis on the day.

From another page:

http://www.garp.org/risk-news-and-re...?newsId=129462


There are 2 comments.
Click here to view.

Ada Reynolds 3/2/2015 9:17:13 PM

Fellow GARPs, this Saxo Bank crisis should be well documented as a case study. From risk management prospective, Saxo Bank committed a big mistake.

1. In its FX business, Saxo Bank makes prices to clients on FX spot, forward and options. That means Saxo Bank is having a principal-to-principal relationship with clients. On their trading platform, the prices are all tradable, and it forms an "offer". Once the trade is executed on the trading platform, via clients' action, or orders triggered, that constitutes an "acceptance". With "offer" and "acceptance", that is a contract sealed. For whatever reason that one side manipulate the details of the transaction (here it is price), it is a breach of contract. The new price of the contract has no legal power to be enforced because the content is not mutually agreed.

2. In its letter explaining the methodology of the “re-pricing”, Saxo Bank is confusing itself as an agent. In this business, Saxo Bank is actually the sole market maker from clients’ perspective. There are no other markets. If Saxo Bank explains its methodology with reference to EBS, the client agreements have to be re-written that Saxo Bank acts as an agent and all trade flows (spot and forward) goes to EBS (and Saxo Bank bears no responsibility on the fills), and each and every trade confirmation with EBS has to be sent to clients. However, it still cannot solve Saxo Bank’s problems in options because it cannot find a sizable marketplace for options similar to EBS.

3. The key problem of Saxo Bank is its risk control on pricing. As a market maker, Saxo Bank has full discretion to quote a price on its trading platform. The bid price it quote to clients is the price Saxo Bank willing to buy from clients, and the ask price it quote to clients is the price Saxo Bank willing to sell to clients. Therefore, always, Saxo Bank should display a price that it is willing to do buy and sell (for this part the Trading department takes the blame, then the Risk Management department). It cannot first quote clients a price and then twelve hours later tell clients that, sorry, we are going to change your transacted price to another price blah blah blah.

4. Another highlight of the incidence, from a risk management perspective, is how Saxo Bank manages its FX exposure. If clients are selling CHF, to avoid depreciation of the CHF, Saxo Bank should have shorted a certain amount of CHF with its own trading counterparties. Did Saxo Bank get out of its hedge positions before it cut clients’ margin positions? Would it be possible that Saxo Bank got hit by betting bigger than clients and then transferred the losses to clients by manipulating clients’ positions?

Ada Reynolds 3/2/2015 9:35:14 PM

Another key study in the Saxo Bank crisis is how we look at Counterparty risk. Saxo Bank does trade with another entity in order to hedge its exposure from clients. Is Saxo Bank evaluating its trading counterparties sufficiently? Would anyone of them dishonored trades with them (same way as they do to clients)? Is the contract terms able to protect Saxo Bank from being dishonored on trades which they can profit from? Besides counterparty risk, how about liquidity risk? Did Saxo Bank has a too big concentration exposure on CHF (compare to the potential liquidity that is available) such that it cannot hedge its own exposure in good prices? With Saxo Bank claiming low liquidity in the EURCHF pair, do they have a plan to trade USDCHF and EURUSD separately?
"

Saxo Bank Volumes Slump in February despite Record Client Deposits

According to data released by the Danish multi-asset brokerage, Saxo Bank, trading volumes throughout the month of February have materially declined when compared to the first month of the year. The average daily trading volume (ADV) slumped by 37 percent to $9.0 billion.
The total trading volume declined 40 percent to $179 billion, marking a multi-year low. The decline comes during a challenging month for the foreign exchange industry as volatility has declined materially in major currency pairs.

See more at: http://forexmagnates.com/saxo-bank-v...#comment-56019

source: http://www.bloomberg.com/news/articl...-currency-bets

(for full article please go to the source)

“We still expect firm volatilities over the coming months,” Nielsen said. “It is not that we have a crystal ball, but investors should be made aware of the risks.” Saxo responded to the market chaos that followed Switzerland’s decision to abandon its exchange-rate cap by repricing a number of franc trades. Chief Financial Officer Steen Blaafalk said in January Saxo faces legal action as a result of its decision.

Client Complaints

Retail investors have been pouring into foreign exchange, the world’s largest financial market.

Average daily volumes traded as a percent of the total spot market almost doubled in five years to 20 percent, or $400 billion, in 2012, according to a January 2014 presentation by Citigroup Inc. Saxo had an 8 percent share of the market, sharing fourth place with Alpari Ltd., it said.

The bank has received complaints from clients challenging its decision to revise prices on Swiss franc trades made Jan. 15. In a letter to the Danish regulator dated Feb. 9, Saxo said it was trying to avoid being sued when it continued accepting Swiss franc orders after the market froze.

The bank then told clients in e-mails seen by Bloomberg it would execute their trades at less favorable prices than those initially shown. The bank published a list of those prices some 12 hours later.

Legal Challenge?

Soeren Hansen, a partner with Andersen and Partners, said the Danish law firm has sent Saxo a letter demanding that it reverse its decision to reprice franc trades or face a legal challenge. The law firm represents about 30 clients with a combined 100 million kroner ($15 million) in claims.

Saxo says it has worked hard to ensure customers are treated fairly. Since Jan. 15, the bank has been “liaising with each client on an individual basis to clarify what is possible with respect to each client’s situation and agreeing to an individual plan of action for the repayment,” Blaafalk said in a Jan. 27 interview.

The bank said in January it stands to lose as much as $107 million on bad franc trades, or about a third of its equity capital.

Saxo increased margins on foreign currency pairs as much as fivefold in January and February as volatility surged. The bank said on Friday it’s attracting new customers even as it deals with complaints. Saxo “has seen a fresh inflow of clients, and clients’ collateral deposits for trading are at a record-high,” Nielsen said.

The number of new clients rose 24 percent in January and February from a year earlier, Saxo said. Collateral deposits reached $11.1 billion in February, versus $8.7 billion a year earlier. That compares with a high of $11.4 billion in November, according to Saxo data.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at[email protected]
To contact the editors responsible for this story: Veronica Ek at [email protected]Tasneem Hanfi Brogger, Christian Wienberg

To me, the best criteria for choosing a broker nowadays is clear - just look at how the brokerage reacted to the Swiss Franc event in January and decide for yourself. If they revised their prices after client orders had already been filled, they are good for nothing (e.g. SaxoBank).