Swiss franc unpeg (SNB)

The central bank swore it would defend the floor. Three years steady, then 30% in twenty minutes.

The world stops matching the model. Regime change and leverage turn a small error fatal.

Room: Q4 Where models die
Year: 2015
Impact: $830M
Sector: Hedge fund / FX brokers
Region: Europe
Category: Economic

Why this room

The floor was not a market price, it was a policy commitment, and market participants had converted it into a modelling assumption: a hard, effectively riskless boundary on the EUR/CHF distribution. Positioning built on that boundary (carry structures, short-franc exposure, retail FX at high leverage, and stop-loss architectures that assumed a continuously tradeable market) was safe only while the assumption held. When the SNB withdrew the commitment the distribution changed shape within minutes, liquidity gapped straight through stop levels, and leverage converted small directional errors into terminal ones: client accounts went to negative equity, brokers breached regulatory capital, and at least one fund was extinguished outright. That is q4 in its pure form: the world stopped matching the model, and leverage did the rest.

The record

The $830 million figure refers to Everest Capital's Global Fund — the firm's LARGEST fund, with approximately $830 million in assets — which was wiped out by the move and closed. It is the fund's size, not a single trading loss and not an industry-wide total.certain
FXCM announced that client losses generated negative equity balances owed to the broker of approximately $225 million, leaving it potentially in breach of regulatory capital requirements; it subsequently took a $300 million rescue loan from Leucadia National.certain
On 15 January 2015 the SNB discontinued the minimum exchange rate of CHF 1.20 per euro, lowered the interest rate on sight deposits above the exemption threshold by 0.5 percentage points to -0.75%, and moved the three-month Libor target range to between -1.25% and -0.25%.certain
Intraday range (convention matters): the franc surged around 30% against the euro in a chaotic few minutes; EUR/CHF broke below parity to trade as low as 0.805 — a ~33% fall in the euro from the 1.20 floor, equivalent to a franc appreciation of roughly 49% — before recovering to about 1.040, some 13% below the abandoned floor.high
The Swiss benchmark stock index fell by more than 10% at one point on the day.certain

Sources

The book

This entry is one of 111 in the register. The full story, and what it cost the people who lived it, is in Risky Business by Claudia Zeisberger, David Munro and Joanna Reijgersberg-Siew.

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