Leucadia to provide $300M in financing to FXCM

Leucadia inks $300 million FXCM deal
Leucadia inks $300 million FXCM deal   

Retail foreign exchange broker FXCM got a $300 million bailout on Friday after taking huge losses on the Swiss National Bank's (SNB) shock decision to drop its three-year-old peg of 1.20 Swiss francs per euro.

Leucadia National invested $300 million cash in FXCM in exchange for a $300 million senior secured term loan with a two-year term and a 10 percent coupon. If FXCM is sold Leucadia will get a portion of the proceeds. (The terms of the final announcement differed somewhat from a draft obtained earlier in the day).

FXCM shares plunged more than 70 percent in afterhours trading Friday. The stock was halted for the entirety of the regular session.

"Leucadia's support and this financing are by far the best alternative for FXCM, our customers, our shareholders, and all other relevant constituencies," FXCM CEO Drew Niv said in a statement.

FXCM warned Thursday evening that clients owed it $225 million and that it may be in breach of some capital requirements. The stock fell 90 percent in premarket trading Friday before being halted.

As recently as last January, the European Central Bank ranked FXCM as the world's third-largest retail foreign exchange broker.

The rescue came just hours after foreign exchange broker Alpari UK entered insolvency following the Swiss National Bank's decision.

Citigroup has also lost $150 million to $200 million on forex trading because of the Swiss moves, a source told CNBC, demonstrating the magnitude of impacts on the markets.

Rich Repetto, Sandler O'Neill principal, told CNBC's "Squawk on the Street" Friday that this "may be the event of the year when you talk about market movements."

Repetto also said that leverage numbers need to be reexamined by regulators to help prevent these types of reactions in the future.

Alpari left stunned

An employee places a bundle of twenty Swiss franc banknotes inside a Travelex store, operated by Travelex Holdings Ltd., in London.
Simon Dawson | Bloomberg | Getty Images
An employee places a bundle of twenty Swiss franc banknotes inside a Travelex store, operated by Travelex Holdings Ltd., in London.

The FXCM saga intensified just hours after Alpari's collapse.

"The recent move on the Swiss franc caused by the Swiss National Bank's unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity," Alpari UK said in a statement.

"This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us."

Read MoreStunned: Swiss banks, watchmakers hit hard

The company said that, as a result, it had entered into insolvency, adding that retail client funds would continue to be segregated in accordance with FCA rules.

This came after New Zealand brokerage Excel Markets also announced that it was unable to resume business following the SNB's move.

"Both our primary and backup liquidity providers became unresponsive or illiquid for hours after the event," the brokerage said in a statement.

"The majority of clients in a franc position were on the losing side and sustained losses amounting to far greater than their account equity. When a client cannot cover their losses it is passed onto us."


Some traders knew about SNB move: Pro
Some traders knew about SNB move: Pro   

The SNB stunned markets on Thursday, when it scrapped its three-year-old peg of 1.20 Swiss francs per euro. Shortly after the central bank's announcement, the Swiss franc soared by around 30 percent in value against the euro, and by 25 percent against the dollar.

A number of spread betters, including Forex.com, CMC Markets and ETX Capital, issued statements saying that Thursday's extreme currency movements had not materially affected their companies' financial positions.

However Adam Myers, European head of FX research at Credit Agricole, said that some market participants appeared to have been aware that the SNB's decision was coming before the official announcement.

"It definitely looks like to us," he said on Friday. "There was a movement in the market well ahead of the headlines (from the SNB)."

He also said there was a "huge flow" of Swiss francs -- around 34.2 billion -- into Switzerland during December, according to the SNB, which is around 10 times the monthly average.

"You wonder why the Swiss had to break the peg – they were brought to bear by the enormous strain of money flowing into the country during December."

- By CNBC's Katrina Bishop and David Faber. Reuters contributed to this report.