HKMA looks into forex operations at HK banks and brokers after Swiss jolt

The Hong Kong Monetary Authority is looking into the foreign currency operations of banks and brokers amid the global fallout from a surging Swiss franc.

The scrutiny follows massive volatility in currency markets after the Swiss central bank on Thursday scrapped the franc's trading cap with the euro.

Currency broker Alpari UK yesterday declared insolvency after clients' losses linked to the franc's sharp rise were passed on to the firm. At least two other brokers - FXCM of the United States and Global Brokers NZ of New Zealand - said they suffered significant losses after the Swiss National Bank rocked markets by abandoning its three-year cap of 1.2 francs per euro.

"We are following up with the banks on their practice in this regard including the relevant governing terms and conditions to understand the implication, if any, but we would not comment on the situation of individual banks," the HKMA said in a statement.

HSBC Holdings said it was investigating reports that clients in Hong Kong bought the franc below market rates when an online banking system failed to keep up with the currency's rises after the removal of the cap. Media reports cited unidentified bank customers as saying they took advantage of the mistake on Thursday.

"We are in the process of identifying the root cause of the incident involving our online trading of [the Swiss franc]," the bank said in a statement. "Our online trading is currently operating normally."

At FXCM, clients experienced significant losses that "generated negative equity balances owed to FXCM of approximately US$225 million", the US-listed company said.