FX prime broker CFH Clearing has lost the appeal of the 2019 dismissal of its lawsuit against Merrill Lynch in the UK, relating to a series of Swiss Franc-Euro trades that CFH made with Merrill on January 15, 2015 – the day of the infamous Swiss Franc crisis.

Nobody foresaw what would happen that day, as the Swiss National Bank (the country’s defacto central banking authority) surprisingly reversed course and announced that they would no longer be holding down the value of the Swiss Franc versus the Euro – to that point a long-held SNB policy, and something that FX markets visibly relied upon.

The SNB’s move sent the Franc instantly soaring – by how much exactly remains a mystery, but in the 25-40% range – before settling up about 20% on the day, effectively moving from roughly par with the US Dollar to par with the Euro.

On that day, CFH entered into a series of FX transactions with Merrill Lynch as part of its prime brokerage activity, buying Swiss Francs in return for Euros. The transactions were backed by an “ISDA master agreement” (International Swaps and Derivatives Association) which is common among big ticket traders, as well as electronic confirmations. The trades were executed shortly after the Swiss National Bank removed the implied currency floor applied to the Swiss Franc against the Euro, as described above.

Later that day, other banks amended the pricing of trades executed with CFH to reflect the official interbank low. But Merrill Lynch did not.

CFH argued in its lawsuit that since the FX trades were entered into at a time of severe market disruption, Merrill Lynch was obliged to make a post trade adjustment to the price, or to cancel the trades, which of course it didn’t do. Basically, CFH argued that what it called market practice (based on the actions of some other financial institutions) should over-ride the technical language of the ISDA agreement.

It was also argued by CFH that Merrill was in breach of its obligations under its “best execution” policy, which includes a duty to obtain the best possible results for a client – which in this case CFH suggested meant complying with “market practice”.

CFH noted that because of the discrepancy in prices, and the size of the transactions in question, it lost millions of dollars that day.

But the UK commercial courts ruled in 2019 that Merrill had no obligation to over-ride the ISDA agreement, and that the agreement could indeed have contained clauses to deal with situations which arose that day such as market disruptions – which it didn’t. And now, Law360 has reported that the UK appellate court has backed up that ruling and found there was “no arguable basis” to suggest that CFH and Merrill Lynch had agreed to incorporate “market practice” generally, outside of the terms of their signed agreement.

CFH Clearing is now a unit of Playtech plc (LON:PTEC). Merrill Lynch is (and was then) a unit of Bank of America.