Matt Levine thinks and writes: Up until January 15, the Swiss franc was capped against the euro and was pretty quiet against the U.S. dollar, trading at about 1.02 francs to the dollar as of that morning. Then the Swiss National Bank removed the cap and the franc spiked to 74 centimes to the dollar, before pretty quickly bouncing back part of the way. It’s now back around parity. If you were short the franc against the dollar at 4:30 a.m. New York time that day, you had lost more than a third of your money less than half an hour later. But half an hour after that, your losses were back to a more manageable 15 percent. And two months later they had pretty much disappeared.
Unless, of course, you closed out your position on January 15, in which case your losses were permanent. And obviously someone was buying francs (selling dollars) all the way up (down). Someone bought francs at the worst possible time.
Probably a lot of people with no choice in the matter. People like “Tormar is the joint family office of former Goldman Sachs partners Ron Marks and John Tormondsen” (get it?), and it did a lot of foreign exchange trading with Citi as its prime broker. Much of that FX trading involved betting against the Swiss franc, using leverage from Citi. When the bad thing happened, Tormar’s equity vanished, and an awkward conversation became necessary:
Tormar was down $3.7 million on FX spot and forward transactions, but the bigger losses — responsible for $31.5 million of Citi’s claim — were for option trades. The biggest clusters of trades — assuming I’m reading the statement right! — were put options that Tormar sold on the dollar against the Swiss franc, betting that the dollar wouldn’t decline.
Citi Prima Brokerage Agreeement
Prime Brokerage Termination Agreement
