By Michelle Price and Swati Pandey
HONG KONG/SYDNEY (Reuters) - Singapore Exchange Ltd (SI:SGXL) said it has raised the amount of cash firms must pledge to cover trading positions due to an expected rise in market volatility linked to Britain's vote on whether to exit the European Union.
Asia's markets will be the first to open in the wake of a landmark referendum on Thursday that will see UK citizens decide whether or not the country should remain a member of the European Union.
Traders expect extreme volatility, especially in currency markets and related currency derivatives contracts, particularly if the "Leave" camp wins.
"SGX has been assessing the potential impact of the UK's referendum on the country's EU membership," Agnes Koh, Chief Risk Officer, SGX told Reuters.
"Given the potential for increased market volatility, we have taken the precautionary step to introduce higher margins for contracts, including those with material open interest."
SGX is the first Asian exchange to publicly confirm increasing trading margins, although several others including the Hong Kong Exchanges and Clearing Ltd (HK:0388) and the Australian branch of London Stock Exchange Group-owned LCH have privately told dealers they may also hike margins or require additional intra-day margin calls, traders told Reuters.
SGX, which raised margins on June 17, said it would continue to monitor market developments and may make further adjustments if needed.
Market volatility has already spiked in the run up to the referendum, with the CBOE Volatility index (VIX) or VIX up 14 percent on Wednesday alone as polls showed the outcome was too close to call.
The Australian and Japan markets are expected the bear the brunt of the opening Asia-Pacific trading session.
In notices issued to market participants on Thursday afternoon, the Australian Securities Exchange warned of potential additional margin calls on cash and futures products during the Friday trading session. “Participants should be prepared to meet all intra-day margin calls,” the notice added.
A spokeswoman for the Japan Exchange Group, which runs the Tokyo Stock Exchange and the Osaka Securities Exchange, said the bourse had not changed margins but was taking measures to ensure smooth trading in anticipation of increased trading volumes, including increasing the number of monitoring staff.
A spokeswoman for LCH, which clears over-the-counter derivatives in Australia, declined to comment on discussions with clients, but said the company's rules allow it to make additional margin calls.
Officials at the Korea and Thailand exchanges said they had no plans to raise margins. HKEX declined to comment.
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Dealers and traders in Asia Pacific have also taken a series of precautionary measures, including raising the margins they charge clients and stress-testing trading systems, traders told Reuters.
Many staff will be on call and key decision-makers will have to be present on the trading floors.
"We have increased margin requirements for a lot of instruments, all European indices, all FX and precious metals as well," Sydney-based CMC Markets chief market strategist Michael McCarthy told Reuters.
"It's an important move from us both in terms of making sure there is enough capital in the trading accounts to protect the traders but also as a signal to them that we're expecting potentially unusual markets and they should be ready for that."
Many brokers were hit by a sudden lifting of a cap on the Swiss franc against the euro in January 2015 by the Swiss National Bank that saw trading seize up, prices disappear and the currency's value balloon by 40 percent in minutes. That led to a trail of losses and bankruptcies, especially in the retail trading segment.
Pattera Dilokrungthirapop, chairwoman of Association of Thai Securities Companies told Reuters some brokerage firms may raise cash for margin trading on case by case basis to help manage risk.
"Currently, brokers have managed risk quite well and set collateral at about 35-40 percent, which is higher than minimum requirements. I don’t think it should be any problem."
Major banks around the world are also preparing.
One senior HSBC (L:HSBA) executive said the bank had ramped up staff levels in its global markets business and had extra people on call. An HSBC spokesman said the bank has prepared for any market impact caused by the referendum.
In a notice sent to FX clients on Tuesday, Swiss investment bank UBS warned clients it may fail to execute some orders on its electronic trading platform.
Some money remitters, many of which were burnt by the SNB incident, sat out the market entirely on Thursday.
Azimo, one of the leaders of the new breed of online brokers, said it would make an unprecedented move to halt operations from 6 a.m. on Thursday.
It said it would resume after "things have settled down on Friday and we can safely trade again."