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Margins on Pound Trades Raised at FXCM, Saxo Amid Brexit Panic

http://www.bloomberg.com/news/articles/2016-06-06/saxo-bank-raises-margins-on-pound-trades-as-brexit-fears-spread?cmpid=yhoo.headline&yptr=yahoo

Saxo Bank A/S and FXCM Inc. -- two currency trading banks burned by the Swiss franc crisis early last year -- are raising their margin requirements on pound trades amid fears that Britain’s June 23 vote on European Union membership will trigger market mayhem.

Saxo, based outside the Danish capital Copenhagen, is telling clients to set aside 7 percent of their leveraged pound accounts, compared with 2 percent previously, as a number of polls show Britain may actually vote to quit the EU. FXCM, based in New York, will raise its margin requirements on pound and euro pairs, starting June 10, with more increases set for June 17.


Graph shows implied volatility

The June 23 referendum “is a significant market event whose outcome may lead to disorderly markets impacting pricing and liquidity of certain assets,” Claus Nielsen, head of Saxo’s markets unit, said in an e-mail to Bloomberg. The bank is sending a letter to clients containing the new requirements on Monday and said it may implement additional margin increases should volatility continue to grow.

Saxo has been “monitoring the implied volatilities traded in the FX Options market over the past two months, which have led us to the conclusion that a Tier 1 margin level” for the pound of 7 percent “is rational, quantitatively fair, appropriate and prudent,” Nielsen said. “We are applying the same analysis methodologies when looking at equity related products.”

Saxo said its adjustments will affect transactions in pounds, euros, francs, yen and gold. It will also apply to U.K. Index CFDs, European Index CFDs, U.K. single stock CFDs as well as U.K. stock options and U.K. cash stocks. The changes are effective as of June 16.

“Going into an event of this magnitude with less than a 5-7 percent margin requirement on any U.K. margin instrument does not seem responsible to us and gives the retail client the wrong impression of the underlying volatility and risk,” Nielsen said.

For a story on Saxo’s margin increases last year, click here.

IG Markets Ltd. is also raising margins on the FTSE 100 and all pound pairs on June 10, with additional increases coming on June 17 and June 22, the company said in a statement on Monday.

The pound sank to a three-week low on Monday while implied volatility against the dollar has spiked in recent days. A YouGov Plc poll for ITV Plc found 45 percent of British voters want to leave the EU compared with 41 percent opting to remain. A survey by global market research company TNS showed 43 percent backing an exit, and 41 percent wanting to stay, though pollsters themselves have cautioned against reading too much into the numbers.

Saxo in January 2015 increased margins on foreign currency pairs several times amid a surge in volatility following Switzerland’s decision to send the franc into a free float. FXCM faced a shortfall when customers lost money on the franc crisis. It was rescued when Leucadia National Corp., owner of New York-based Jefferies Group, said it would provide $300 million to enable the brokerage to meet regulatory capital requirements and continue normal operations.