The Day the Swiss Franc Broke Forex

At 9:30 a.m. Zurich time on January 15, 2015, the Swiss National Bank announced it was abandoning the floor of 1.20 francs per euro it had defended for three years. Forty-seven seconds later, EUR/CHF broke through 1.20. Nine seconds after that, the major bank liquidity providers pulled their quotes.

What the screens showed for the next forty minutes was not really a market. FXCM, the largest U.S. retail broker at the time, later published its tick data: the lowest price it received from an institutional venue was 0.5696. External electronic networks printed quotes as low as 0.2000 and 0.5000. At one moment, two banks were simultaneously bidding 0.6374 and 1.1220 — a five-thousand-pip spread on what had been the calmest major currency pair in the world.

The damage tracked the leverage. Retail forex clients had been long the floor for years on the assumption it could only fall a few pips before the SNB caught it; their stops did not execute, and the negative balances landed on their brokers. FXCM's clients ended the morning $225 million in the red, and the firm took an emergency $300 million loan from Leucadia National to keep its doors open. Alpari UK, a London broker, declared insolvency by the end of the day. Everest Capital's flagship hedge fund, which had been short the franc, was wiped out.

The SNB's stated reason was monetary policy divergence — a strengthening dollar and incoming ECB quantitative easing meant defending the floor would require buying euros at an open-ended scale. The fuller lesson is what "a floor" means when the issuer can leave. The peg held until it didn't, and the price discovery the floor had suppressed for three years arrived in under a minute, on screens that had stopped quoting.