Exclusive: Saxo Bank Raises Margin Requirements on Swiss Franc Trading

Increasing geopolitical risks coupled with the shift of monetary policy of the European Central Bank are risking a test of

Saxo BankForex Magnates’ reporters have learned that Saxo Bank’s Board of Directors decided to raise the margin requirements on trading foreign exchange pairs including the Swiss franc (CHF) to put associated risks in line with underlying fundamentals. The margin level will be raised from 2% (1:50) to 8% (1:12.5) on Monday, 8th of September, 2014, at 14:00 GMT.

Saxo Bank stated to its clients that increasing pressure on the 1.2000-1.2050 EUR/CHF floor area and the build-up of short CHF (Swiss franc) positions in the broader market could represent a large risk should the 1.2000 floor give way.

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The Danish brokerage stated to its customers “We believe any breach of the 1.2000 peg could see a significant appreciation of CHF.”

As 85.8% of the traders on Saxo Bank’s book, who are positioned in the EUR/CHF pair are committed to short the Swiss franc against the euro, the risk management operations for Saxo Bank can become increasingly complex. According to information obtained by Forex Magnates’ reporters, stop levels on long Swiss franc positions are situated closely below the “floor” at 1.2000.

Similar positioning data from other brokerages across the industry complicates the environment further – 88.27% of OANDA’s EUR/CHF traders are positioned to the upside. FxPro’s trading book reveals 98.9% (!!!) of clients trading the same pair are positioned to the upside.

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The statement by Saxo Bank that the move comes to reflect a potential increase in risk and to protect their clients makes all the sense in the world. Should for any reason the Swiss National Bank (SNB) fail to hold the Swiss franc’s floor level against the euro, the triggering of stops below can result in massive slippage and the market could easily gap several figures, just as it did almost 3 years ago after the SNB announced the implementation of the 1.2000 floor.

While financial industry professionals have been joking for a while that “retail traders are holding the floor,” over the weekend the SNB’s Chairman, Thomas Jordan, re-committed to the 1.2000 level.

The Swiss National Bank committed 3 years ago to enforce a maximum exchange rate of the Swiss franc against the euro. The central bank has been vigorously defending the 1.20 level since committing “to buy unlimited amounts of foreign currency” to achieve that.

In light of geopolitical pressures and the prospects for the European Central Bank (ECB) to embark on further monetary policy easing, the EUR/CHF has fallen to 21-month lows, shedding 5% from its 2013 highs and testing the SNB’s resolve to defend the “floor”.

The chairman of the governing board of the Swiss National Bank (SNB) has reiterated the commitment of the central bank to maintain the floor in the EUR/CHF exchange rate over the weekend. He stated in an interview with NZZ am Sonntag that the SNB “stands ready to enforce the exchange rate cap by buying unlimited amounts of foreign currency.”

Back in November 2012, ICAP announced the change of pricing of the EUR/CHF cross on its EBS trading platform. It switched to pricing the pair in ½ pips rather than in tenths due to the extraordinary market conditions.

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