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SGX, Asian brokers hike trading margins on Brexit volatility fears

SGX

Singapore Exchange Ltd 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 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 or VIX up 14 per cent 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.

Paul

The author Paul