Market Mayhem Unleashed

The Day After Brexit: Circuit Breakers, Stock Market Rout & Interventions

The Brexit referendum has triggered the resignation of UK's Prime Minister David Cameron

The final tally from the United Kingdom’s vote is in with Brexit narrowly winning. As a result global stock markets have plummeted across the board with Euro Stoxx 50 opening lower by 11 per cent. That meant that a number of brokerages who have not been that focused on the CFDs risks arising from Brexit could have been affected materially.

The CEO of Deutsche Bank John Cryan has commented on the Brexit result from the referendum that all sides are set to lose from the outcome. With the stock market value of systemically important banks dwindling and Barclays, RBS and Lloyds trading down 30 per cent at the market open, volatility on financial markets is escalating rapidly. The circuit breakers on the stock exchange have been triggered with the banking stocks hitting their limit down.

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Circuit Breakers are being triggered across the board with brokerages adjusting margin levels for their clients. In the meantime, central banks are starting to influence the foreign exchange market with direct participation.

The Swiss National Bank (SNB) has just announced that it has intervened in the market and is likely to do so again if market conditions warrant it. Currently the rate in the EUR/CHF is 1.0785, which is higher that the earlier low printed around 1.0625, which is the level where the SNB has intervened in the market.

The UK’s Prime Minister David Cameron has announced his resignation effective from October, a news announcement which hardly impressed the market.

Saxo Bank Contempt With Current Margin Rates

Saxo Bank has been one of the first companies to implement extraordinary measures and increase margin requirements for its clients. The Danish multi-asset brokerage’s Head of Markets, Claus Nielsen, commented,“Going into the UK referendum we have considered it important to take prudent measures to reduce our clients’ exposure to risk and to be fully transparent.”

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“This has proved to be the right decision as our numbers show gains for our clients despite the volatility in both FX markets and Asian equity markets. The German DAX index was down 10 % at open and we expect further volatility on European stock markets today and continue to recommend clients to be cautious in this environment,” Nielsen elaborated.

At present Saxo Bank is not considering to increase margin requirements further and is contempt with the current margins and will continue to monitor volatility very closely.

BATS Global Markets Anticipates More Volatile Markets

With volatility present across all markets, one of the industry’s heavyweights, BATS Global Markets has highlighted its expectations of a protracted period of volatility.

Financial markets turbulence has prompted a number of companies to introduce extraordinary measures to cope with the market flow. A spokesperson for BATS Global Markets has stated, “In light of the outcome of the referendum regarding Britain’s membership in the European Union, we are well-prepared to adapt our business accordingly as Britain plans its exit from the EU.”

“We anticipate volatile markets globally surrounding the uncertainty of the impact of a potential Brexit in the coming months and our top priority is the orderly operation of our marketplaces. We remain laser-focused on the needs and requirements of our customers and will ensure they are fully apprised of our plans as we adapt to this new business environment,” the spokesperson elaborated.

ISDA Outlines Two Years Until Exit

A commentary from the International Swaps & Derivatives Association is outlining that from a legal perspective, the outcome from today’s referendum is far from being the current market event. Commenting in a statement, the organization stated, “It is important to stress, that the UK vote to leave the EU will not have an immediate impact on the legal certainty of existing derivatives contracts, nor will it require any immediate contractual change or action from counterparties.”

“Once the UK government serves formal notice of its intention to withdraw, the UK will continue to remain a member of the EU for at least two years. During that time, existing European treaties, directives and regulations will remain in force. ISDA has conducted detailed analysis on the contractual implications of Brexit, and has highlighted a number of potential issues that counterparties will need to consider during the twoyear negotiation period. Now the UK has voted to leave, ISDA will convene applicable working groups and hold a series of industry calls to ensure derivatives market participants are prepared,” the statement concluded.

 

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