By William James, Freya Berry and Patrick Graham
June 15 (Reuters) - The world's biggest banks including Citi and
Goldman Sachs will draft in senior traders to work through the night
following Britain's referendum on EU membership, set to be among the
most volatile 24 hours for markets in a quarter of a century.
vote to leave the European Union on June 23 would spook investors by
undermining post-World War Two attempts at European integration and
placing a question mark over the future of the United Kingdom and its
$2.9 trillion economy.
Deutsche Bank, JPMorgan, Goldman Sachs, HSBC, Barclays, Royal Bank of
Scotland and Lloyds are among those banks planning to have senior staff
and traders working or on call in London as results start to dribble in
after polls close at 2100 GMT, according to the sources.
Dimon, chief executive officer of JPMorgan Chase & Co, told
employees on a visit to Britain this month that if the vote was to leave
the EU, the bank would have to have "teams of people thrown on what
"We won't know
what it means: there is a wide range of outcomes," Dimon, a supporter of
Britain's membership who has warned of job cuts at JPMorgan in Britain
if there is an Out vote, said in the broadcast speech.
vote to leave could unleash turmoil on foreign exchange, equity and
bond markets, spoiling bets across asset classes and potentially testing
the infrastructure of Western markets such as computer systems, stock
exchanges and clearing houses.
Reserve Chair Janet Yellen has cautioned that a Brexit vote could shake
financial markets and potentially push back the timing of the next rise
in U.S. interest rates.
of England Governor Mark Carney has said sterling could depreciate,
"perhaps sharply" and some major banks have forecast an unprecedented
fall to parity with the euro and as low as $1.20 in the days following
any vote to leave the bloc.
Bank of England will be staffed overnight, with senior policymakers on
call if markets go into meltdown. The finance ministry would not comment
on its staffing plans.
official Vote Leave campaign argues there is no evidence that leaving
the EU would weaken sterling long term, while Nigel Farage, leader of
the UK Independence Party has said that even if the currency did fall,
it would simply boost British exports.
Sterling - the world's fourth most traded currency - has moved sharply in recent weeks, often on the back of opinion polls.
on the results from across the United Kingdom, the night of June 23 and
early morning of June 24 could rank as one of the most volatile nights
in the history of the London market.
all seen U.S. elections, UK general elections, we've had the Scottish
referendum, the collapse of Lehman and QE (Quantitative Easing) but this
is by far and away the biggest risk event that has presented itself to
the UK," said Chris Huddleston, head of money markets at specialist bank
for 41 percent of global turnover in the $5.3 trillion-a-day foreign
exchange market, more than double the turnover in the United States and
far more than the 3 percent of its closest EU competitors, France and
traders are going to be in ... They don't like missing big moments, if
there's going to be one, they want to be at their desk," said a senior
source at a major bank based in the Canary Wharf financial district of
Some banks are
planning the night down to the smallest detail to keep their traders on
top form - laying on all night catering and booking nearby hotels to
offer temporary respite.
is the biggest planned risk event that anyone can remember, so everyone
is going to be involved. The question is just when you try and get some
sleep," said one senior foreign exchange trader.
exit polls are planned by British broadcasters so the first numbers
from the counts will be turnout results from 382 different areas
followed by totals for 'Remain' and 'Leave' in each area.
Polls have given contradictory pictures of British public opinion, keeping markets guessing on the final outcome.
has left sterling, currently priced at $1.41, far away from either of
its likely resting places after the final result is known - seen by
banks as around $1.50 in the event of a remain vote, or $1.30 or lower
if Britain votes to leave.
almost-certain rapid repricing could set the scene for one of the
rockiest sessions since traders wrestled down the value of sterling on
Black Wednesday, September 16, 1992, when Britain crashed out of the
European Exchange Rate Mechanism.
it's Brexit, then we're looking at something that's at least on the
scale of Black Wednesday," said Nick Parsons, global co-head of FX
strategy at National Australia Bank and a veteran of the 1992 sterling
Prices for derivatives used to mitigate the risk of sharp swings in sterling point to a period of intense volatility.
and bank managers planning for the event draw comparisons with the 40
percent surge in the Swiss franc in January 2015, which bankrupted
dozens of small investment funds and cost banks including Citi hundreds
of millions of dollars.
and analysts told Reuters they would expect a Brexit vote to cause
sterling to 'gap', or plummet lower - as orders to sell the currency met
an absence of willing buyers, leaving a blank spot on the price charts
snaking across traders' screens.
can inflict huge losses on banks and traders, forcing them to bail out
of trades at prices far below the automatic sell orders, or 'stops' they
normally use to limit losses.
market participants have urged the Bank of England to call on U.S.
Federal Reserve if the turbulence gets really bad. The BoE could buy
sterling with dollars borrowed directly from the U.S. central bank under
arrangements first used in response to the global financial crisis in
Carney has said the
Bank would not stand in the way of any exchange rate adjustment but
would take the necessary steps to ensure markets remained orderly. It
has not commented on whether or how the bank might intervene.
"MONEY TO BE MADE"
senior source at one London bank said his firm had been building big
reserves of sterling to lend out to any clients who get caught short by
swirling asset valuations that require them to post extra security
deposits with their trading partners.
exchange brokers such as PhillipCapital UK and Saxo Bank have raised
the security deposit they demand from clients in order to trade, a step
designed to offset the increased risk that customers get caught out by
manager who declined to be named said his firm had run a test to see if
it could cope with a 30 percent fall in sterling. The fund had increased
its cash holdings and would have traders working overnight, ready to
sell other assets in case it needed to raise more cash in a hurry.
Volatile markets not only put traders under pressure: they test the limits of the technology that underpin the market.
source at the London Stock Exchange said volatility could spike on June
24 and that it was putting in emergency capacity for transaction
reporting to cope with any spike in trading volumes that might otherwise
overwhelm its systems.
A spokesperson for LSE declined to comment.
facing a battle against surges in trading volumes, volatile prices and,
at times, the absence of enough buyers or sellers to meet demand, some
traders are rubbing their hands at the prospect of a night and day of
forward to days like this," said one bond trader at a major London bank.
"There's money to be made and lost ... You've just got to hope you're
on the right side of it, not the one being carried out the door."
reporting by Jamie McGeever, Anirban Nag, John Geddie, Dhara
Ranasinghe, William Schomberg, Anjuli Davies, Andrew Macaskill, Lawrence
White, Simon Jessop, Marc Jones and Maiya Keidan, Editing by Guy
Faulconbridge and Philippa Fletcher)