UPDATE 1-Singapore Exchange states hikes margins amid Brexit volatility

Anti-government demonstrators hold placards reading “No Brexit” throughout a protest outside the parliament in Athens, Greece June 15, 2016.

Reuters/Alkis Konstantinidis

Singapore Exchange Ltd (SGXL.SI) said it has actually raised the amount of money firms must promise to cover trading positions due to an expected increase in market volatility linked to Britain’s vote on whether to exit the European Union. SGX is the first exchange in Asia to enhance trading margins, although several others consisting of the Hong Kong Exchanges and Cleaning Ltd (0388. HK) and the Australian branch of London Stock market Group-owned LCH have privately informed dealers they might also hike margins or require additional intra-day margin calls, traders told Reuters. “SGX has actually been evaluating the prospective impact of the UK’s referendum on the country’s EU membership,” Agnes Koh, Chief Threat Policeman, SGX told Reuters. “Provided the capacity for enhanced market volatility, we have actually taken the precautionary step to introduce higher margins for contracts, including those with material open interest.”

SGX, which raised margins on Friday June 17, said it would continue to keep track of market advancements and might make additional modifications if required. A spokesperson for LCH, which clears over the counter derivatives in Australia, decreased to discuss discussions with clients, but said the business’s guidelines permit it to make added margin calls. HKEX declined to comment. Asia’s markets will be the first to open in the wake of a landmark mandate on Thursday that will see residents in the United Kingdom decide whether the country should remain a member of the European Union.

Traders anticipate severe volatility, specifically in currency markets and associated currency derivatives contracts, particularly if the “Leave” camp wins. In the run up to the mandate, market volatility has surged. A volatility evaluate for the Hong Kong stock market.VHSI has reached more than 25 compared with around 18 at end of December while the more popular CBOE Volatility index.VIX or VIX has actually surged this month and rose 14 percent on Wednesday alone.

Clearing houses are a vital part of the worldwide trading facilities, sitting in between two counterparties to a trade to ensure its conclusion in the event either counterparty folds. To cover the risk of default clearers need clients to promise a set amount of margin, normally cash or securities, at the end of the day, but these margin calls can be raised, or made in the middle of the day, amid large rate swings. Dealers and traders in Asia Pacific have also taken a series of precautionary procedures, including raising the margins they charge clients, stress-testing trading systems, and increasing staff to make sure client positions are fully covered, traders told Reuters. Lots of personnel will be on call and crucial decision-makers will need to be present on the trading floors. (Additional reporting by Saikat Chatterjee; Reporting by Michelle Cost; Modifying by Denny Thomas and Lincoln Banquet).

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