Swiss franc shock affects US sec lending
24 February 2015 London
Image: Shutterstock
The thematic focus of January securities lending in the US was on the unpegging of the Swiss franc and further deterioration in the oil and energy space, according to Deutsche Bank.
As the Swiss National Bank shocked markets by uncapping the Swiss franc to the euro, FXCM Inc, an online foreign exchange broker, warned that client losses threatened its compliance with capital regulations.
The stock subsequently traded down to a low of $1.60, down from over $16 at the beginning of 2015.
While FXCM was relatively liquid in the securities lending market prior to the unpeg, long selling created significant recall pressure throughout the market and rates spiked in conjunction.
Short interest doubled, going from 6-7 million to nearly 14 million shares essentially overnight. According to Deutsche Bank, levels in the spot borrow market are “well north” of 30 percent, with collateral mismatch due to low stock price “exacerbating the current dynamic”.
Oil spent most of January under the symbolic level of $50 per barrel. In addition to the usual names such as Transocean, Diamond Offshore, and Linn Energy, others like Sanchez Energy, Energy XXI and CARBO Ceramics experienced particular borrow pressure in January.
As well as dealing with the Swiss franc macro “shock”, Europe also elected an anti-austerity government in Greece.
According to Deutsche Bank: “This has introduced significant further volatility into Greek stocks as the market tries to guess the nature of an accommodation between Greece and its international financiers.”
As the Swiss National Bank shocked markets by uncapping the Swiss franc to the euro, FXCM Inc, an online foreign exchange broker, warned that client losses threatened its compliance with capital regulations.
The stock subsequently traded down to a low of $1.60, down from over $16 at the beginning of 2015.
While FXCM was relatively liquid in the securities lending market prior to the unpeg, long selling created significant recall pressure throughout the market and rates spiked in conjunction.
Short interest doubled, going from 6-7 million to nearly 14 million shares essentially overnight. According to Deutsche Bank, levels in the spot borrow market are “well north” of 30 percent, with collateral mismatch due to low stock price “exacerbating the current dynamic”.
Oil spent most of January under the symbolic level of $50 per barrel. In addition to the usual names such as Transocean, Diamond Offshore, and Linn Energy, others like Sanchez Energy, Energy XXI and CARBO Ceramics experienced particular borrow pressure in January.
As well as dealing with the Swiss franc macro “shock”, Europe also elected an anti-austerity government in Greece.
According to Deutsche Bank: “This has introduced significant further volatility into Greek stocks as the market tries to guess the nature of an accommodation between Greece and its international financiers.”
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