Saxo Bank crisis 2015


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If SNB made a crisis on January 15, 2015, then Saxo Bank made itself (and its clients) a bigger crisis on the day.

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Ada Reynolds 3/2/2015 9:17:13 PM

Fellow GARPs, this Saxo Bank crisis should be well documented as a case study. From risk management prospective, Saxo Bank committed a big mistake.

1. In its FX business, Saxo Bank makes prices to clients on FX spot, forward and options. That means Saxo Bank is having a principal-to-principal relationship with clients. On their trading platform, the prices are all tradable, and it forms an "offer". Once the trade is executed on the trading platform, via clients' action, or orders triggered, that constitutes an "acceptance". With "offer" and "acceptance", that is a contract sealed. For whatever reason that one side manipulate the details of the transaction (here it is price), it is a breach of contract. The new price of the contract has no legal power to be enforced because the content is not mutually agreed.

2. In its letter explaining the methodology of the “re-pricing”, Saxo Bank is confusing itself as an agent. In this business, Saxo Bank is actually the sole market maker from clients’ perspective. There are no other markets. If Saxo Bank explains its methodology with reference to EBS, the client agreements have to be re-written that Saxo Bank acts as an agent and all trade flows (spot and forward) goes to EBS (and Saxo Bank bears no responsibility on the fills), and each and every trade confirmation with EBS has to be sent to clients. However, it still cannot solve Saxo Bank’s problems in options because it cannot find a sizable marketplace for options similar to EBS.

3. The key problem of Saxo Bank is its risk control on pricing. As a market maker, Saxo Bank has full discretion to quote a price on its trading platform. The bid price it quote to clients is the price Saxo Bank willing to buy from clients, and the ask price it quote to clients is the price Saxo Bank willing to sell to clients. Therefore, always, Saxo Bank should display a price that it is willing to do buy and sell (for this part the Trading department takes the blame, then the Risk Management department). It cannot first quote clients a price and then twelve hours later tell clients that, sorry, we are going to change your transacted price to another price blah blah blah.

4. Another highlight of the incidence, from a risk management perspective, is how Saxo Bank manages its FX exposure. If clients are selling CHF, to avoid depreciation of the CHF, Saxo Bank should have shorted a certain amount of CHF with its own trading counterparties. Did Saxo Bank get out of its hedge positions before it cut clients’ margin positions? Would it be possible that Saxo Bank got hit by betting bigger than clients and then transferred the losses to clients by manipulating clients’ positions?

Ada Reynolds 3/2/2015 9:35:14 PM

Another key study in the Saxo Bank crisis is how we look at Counterparty risk. Saxo Bank does trade with another entity in order to hedge its exposure from clients. Is Saxo Bank evaluating its trading counterparties sufficiently? Would anyone of them dishonored trades with them (same way as they do to clients)? Is the contract terms able to protect Saxo Bank from being dishonored on trades which they can profit from? Besides counterparty risk, how about liquidity risk? Did Saxo Bank has a too big concentration exposure on CHF (compare to the potential liquidity that is available) such that it cannot hedge its own exposure in good prices? With Saxo Bank claiming low liquidity in the EURCHF pair, do they have a plan to trade USDCHF and EURUSD separately?


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There are some excellent points made here which actually apply to other brokers too.
If you see anything more from Ada Reynolds....please post...Thank you for this


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Now that their volumes are down......"Saxo Bank A/S may reverse a January decision to demand higher margin payments of clients after recording the lowest monthly volumes in currency trading in more than two years." According to a Bloombrg article

Don't we think its because of their appalling treatment of clients?


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For people who are involved in Saxo Bank manipulating the trade records, please study this released today to find out areas that Saxo Bank misbehave.

This is a page in Bank of England but ECB has it too.

News Release - Global Preamble: Codes of best market practice and shared global principles
30 March 2015

Available as: PDF
The eight foreign exchange committees in the major financial centres are releasing today a revised “Global Preamble: Codes of best market practice and shared global principles” document, which was approved and endorsed by the eight committees at the annual global foreign exchange committees meeting, held in Tokyo on 23 March 2015, and which updates the original version published in 2013. This publication reflects our shared commitment to developing and promoting clear, robust, and implementable best practice guidance. Such guidance, accompanied by high standards of ethical behaviour, is critically important to a well-functioning global foreign exchange market.
These eight committees have worked together closely since the 2014 global foreign exchange committee meeting in Sydney to draft this revised document, which features more detailed, globally harmonised guidance. The document covers topics such as personal conduct, confidentiality and market conduct, and policies for execution practices and reflects a number of the Financial Stability Board’s Foreign Exchange Benchmark recommendations.
The committees expect foreign exchange market participants to incorporate this guidance into their processes and control frameworks in a timely manner. The committees will continue to build on this global collaboration as they seek to promote adherence to best market practices and to help facilitate implementation of the Financial Stability Board’s Foreign Exchange Benchmark recommendations.
The committees listed below collaborated in the drafting of the Global Preamble and in this statement.

Australian Foreign Exchange Committee
Canadian Foreign Exchange Committee
ECB’s Foreign Exchange Contact Group
Hong Kong Treasury Markets Association
London Foreign Exchange Joint Standing Committee
New York Foreign Exchange Committee
Singapore Foreign Exchange Market Committee
Tokyo Foreign Exchange Market Committee

The link in ECB:
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