One of the leading multi-asset brokers in the industry, Saxo Bank, has sent out an email announcement to clients stating that it may increase some margin requirements for its clients in the coming weeks into the Brexit vote in the United Kingdom.
The prospects for sharp market moves have been present, however the latest polls on the matter are heavily tilting the vote in favor of the ‘remain’ campaign. Naturally, Saxo Bank is looking to hedge the prospective risks against a Brexit and is looking to make sure that its clients and the bank are adequately protected from adverse market moves.
With the statement to clients indicating that the probability of increased margin requirements was high, the move could be spreading well beyond directly correlated assets such as the British pound and the UK stock market. In a financial markets world that is tightly interconnected, Saxo Bank is looking to reduce the exposure of its clients and of the bank to market risk.
Industry-Wide Margin Hikes not Ruled Out
Reducing margin requirements did not prevent losses to the tune of $100 million for the Danish company in the aftermath of the Swiss National Bank (SNB) scrapping the floor under the EUR/CHF. That said, the Danish multi-asset brokerage, just as many other providers of trading services to retail and institutional clients, has introduced additional safety nets to prevent future black swans from adversely impacting the balance sheets of brokers.
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Commenting on the letter that Saxo Bank sent to its customers, the Head of Markets of Saxo Bank, Claus Nielsen, said: “Clients have been advised that should there be increased market volatility and liquidity concerns leading up to, during and shortly after the vote, there is a high probability of margin requirement increases, as well as restricted availability of certain trade and order types.”
Brexit Possibility Receding in Recent Weeks
The Danish multi-asset brokerage is not likely to be the only one in the industry that is prepared to make such a move despite the receding risks of a Brexit in recent weeks. The British pound has staged a decent rally across the board reflecting that investors are pairing back the bets that the scenario of the U.K. exiting from the European Union is a viable one.
As of writing, the British pound is trading higher by 0.67 per cent against the U.S. dollar, by 0.43 per cent against the euro and by 0.70 per cent against the Japanese yen.
The latest results from official polls have been overwhelmingly favoring the ‘remain’ camp with the poll trackers rapidly and universally switching the scales to the U.K. renewing its membership in the European Union.