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(Adds details of Leucadia/FXCM deal)
By Anirban Nag and Steve Slater
LONDON, Jan 16 (Reuters) - The Swiss franc shockreverberated through currency trading firms around the world onFriday, wiping out many small-scale investors and the brokeragesthat cater to them and forcing regulators to take a closer lookat the sector.
Some major banks also lost out when the Swiss National Bankscrapped its three-year-old cap on the franc against the euro without warning on Thursday, including Britain'sBarclays which lost "tens of millions" of dollars, anindustry source said.
Retail broker Alpari UK filed for insolvency on Friday,while New York-listed FXCM Inc, one of the biggestplatforms catering to online and retail currency traders, saidit looked to be in breach of regulatory capital requirementsafter its clients suffered $225 million of losses.
FXCM had to turn to Leucadia National Corp, theparent of investment bank Jefferies, to quickly broker a $300million loan that was expected to close Friday afternoon.
In the past 15 years, retail currency trading has grownquickly, attracting individuals staking their own money withlong trading hours, low transaction costs and the ability totake on huge risks for a relatively small sum.
Retail currency trade makes up nearly 4 percent of globaldaily spot turnover of nearly $2 trillion, the latest surveyfrom the Bank of International Settlements shows, having grownfrom almost nothing in the 1990s.
This small share means the sector poses limited risk to thefinancial system but retail brokers are much more vulnerable tobig losses than banks. Regulators in New Zealand, Hong Kong,Britain and the United States said they were checking on brokersand banks after reports of volatility and losses.
The move "caused by the SNB's unexpected policy reversal ofcapping the Swiss franc against the euro has resulted inexceptional volatility and extreme lack of liquidity," Alpari,the shirt sponsor of English Premier League soccer club WestHam, said in a statement.
"This has resulted in the majority of clients sustaininglosses which exceeded their account equity. Where a clientcannot cover this loss, it is passed on to us. This has forcedAlpari (UK) Limited to confirm that it has entered intoinsolvency."
Online trading services provider London Capital GroupHolding put its franc-related losses at up to 1.7million pounds ($2.6 million).
The franc surged as much as 40 percent to a high of 0.8500per euro after the Swiss central bank lifted its1.20 per euro cap.
New Zealand foreign exchange dealer Global Brokers NZ Ltdclosed due to hefty losses. The national Financial MarketAuthority said it would "be seeking assurances that the clientfunds have been protected and segregated".
The Hong Kong Monetary Authority said it was "following upwith the banks on their practice in this regard ... tounderstand the implication, if any, but we would not comment onthe situation of individual banks."
Britain's Financial Conduct Authority said it was talking toAlpari, while the U.S. National Futures Association said it wasmonitoring the foreign exchange brokers it oversees.
BROKER WOES, REGULATORY POWERS
FXCM Inc shares fell nearly 90 percent inpre-market hours before being halted for the regular tradingsession on the New York Stock Exchange. In after-hours action,it resumed trading, rebounding from the premarketlosses, but still down 70 percent from Thursday's close.
Top executives from FXCM went through company books until atleast 5 a.m. EST (1000 GMT) on Friday, according to a sourceclose to FXCM. Regulators were in FXCM's offices in downtownManhattan on Friday, according to two sources.
A spokesperson for the U.S. National Futures Associationsaid it was in "constant" contact with FXCM, and had been"watching the volatility" as a result of the Swiss central bankmove. NFA rules allow a leverage ratio of 50 to 1 ontransactions in the Swiss franc, which means even a 2 percentmove can wipe out a position.
Not all brokerages suffered. GAIN Capital Holding Inc said on Friday it generated a profit on Thursday fromtrading, and that its strong financial position will allow it towin market share. Its shares closed up 2.9 percent at $8.52.
Canada-based foreign exchange broker OANDA said in astatement it "will pardon our clients' negative account balancesassociated with this market event" and would not "re-quote oramend" clients' trades on the Swiss currency.
But Denmark's Saxo Bank, one of the biggest players inretail foreign exchange trading, said late on Thursday it wouldpotentially set different rates for its clients' transactions.
Saxo Bank chief financial officer Steen Blaafalk toldReuters some clients had suffered losses but the bank was wellcapitalised. Retail investors, some of whom face huge losses,protested when Saxo said it might set different rates.
Lawyers said this could be contested.
"I think there will be litigation and disputes overautomatic close-outs," said a financial services lawyer.
Hong Kong media reported clients of HSBC Holdings were able to buy the Swiss currency at below-market rates forseveral hours through its online system, making several thousanddollars in profits on the trades.
HSBC said online foreign exchange trading for the Swissfranc "is currently operating normally and we will investigatereports that customers could trade at old rates initially afterthe cap was lifted." (Additional reporting by Michelle Chen, Andrew Winterbottom,Huw Jones, Alasdair Pal, Lincoln Feast Elzio Barreto and JessicaToonkel; Editing by Ruth Pitchford, David Gaffen and JamesDalgleish)
