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(Recasts, adds Barclays, details of losses)
By Anirban Nag and Steve Slater
LONDON, Jan 16 (Reuters) - The Swiss franc shockreverberated through currency trading firms on Friday, dealingthe heaviest blows to those catering for small-scale retailclients and forcing regulators to take a closer look at thesector.
Some major banks also lost out when the Swiss National Banklifted its cap on the franc without warning on Thursday,including Britain's Barclays which lost "tens ofmillions" of dollars, an industry source said.
However, the scale of losses in the much smaller retailsector raised questions about its role in the high-octane worldof foreign exchange.
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 dailyspot turnover of nearly $2 trillion, the latest survey from theBank of International Settlements shows, having grown fromalmost 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.
Retail broker Alpari UK filed for insolvency on Friday.
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).
Regulators in New Zealand, Hong Kong, Britain and the UnitedStates said they were checking on brokers and banks afterreports of volatility and losses.
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
New York-listed FXCM Inc, one of the biggestplatforms catering to online and retail traders of currencies,said it may be in breach of some regulatory capital requirementsafter its clients suffered $225 million of losses.
Its shares did not open in regular trading after havingfallen nearly 90 percent in pre-market hours.
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's 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 on Thursday it might set differentrates for transactions.
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."($1 = 0.6619 pounds) (Additional reporting by Michelle Chen, Andrew Winterbottom,Huw Jones, Alasdair Pal, Lincoln Feast and Elzio Barreto;Editing by Ruth Pitchford)
