Saxo Bank has announced to clients that it will be applying a second wave of minimum margin requirements increases starting February 4th. The broker had initiated an initial across-the-board increase of margins on January 21st, affecting many popular forex and CFD products.
The margin hike is in response to increased volatility following the Swiss franc de-pegging that took place on January 15th. The January 21st date also took place shortly before last week’s ECB meeting, which ultimately led the euro to weaken against major currencies.
While not as broad of a margin increase as what had taken place before, the changes are still notable as they apply to many popular currencies such as the Australian dollar (AUD), Canadian dollar (CAD) and New Zealand dollar (NZD), which are all being raised to 3% from 2%, as well as the Chinese yuan moving from a 5% margin minimum to 20%.
The increase is in contrast to many other brokers who had reduced their minimum margin requirements after temporarily raising them before last week’s ECB meeting. The changes, though, take place as Saxo Bank clients have reportedly absorbed over $100 million in negative balances due to Swiss franc volatility.
The move seemingly indicates a shift by Saxo Bank aiming to cater to higher-net worth individuals and institutional clients who are less keen to use high leverage. The average leverage used on foreign exchange trading by institutional FX traders is substantially lower than the typical 1:100 which most retail foreign exchange traders are used to.
Last week, Saxo Bank already increased margin requirements for a number of major FX pairs to between two and three percent.
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Line in the Sand?
Saxo Bank has defended the decision to adjust prices on CHF trades, stating the scenario as unavoidable given the extreme liquidity shortage immediately following the Swiss National Bank’s decision to abandon its euro peg.
According to Steen Blaafalk, CFO and Head of the Saxo Bank’s risk management, in a recent statement to Bloomberg, Saxo has the legal option to go back in time and adjust the prices at which it conducted trades, unlike some other brokers.
“We never comment on competitors, but some brokers do not have the right to amend client trades legally, and some cannot even go after negative accounts,” Blaafalk added in an accompanying email.
Vienna-based Censeo Asset Management noted in an earlier statement this week that Saxo Bank “Can’t recognize the lawfulness of this measure, helping its clients challenge Saxo’s repricing if a review shows the action is questionable under Austrian law.”
This statement follows a wave of industry backlash from a number of clients who point to abnormal volumes. The recent expansion of margin requirements will help allay the possibility of future situations like this from playing out, though sorting through the present fallout appears to be an unfinished affair.
Saxo Bank since been ordered by the Danish Financial Supervisory Authority to provide a detailed report of its handling of franc trades on Jan. 15 after some of its clients complained to the watchdog.