SGX raises trading margins to protect against potential volatility

Pedestrians going past an electronic screen at the Singapore Exchange headquarters.
Pedestrians going past an electronic screen at the Singapore Exchange headquarters.ST PHOTO: CHEW SENG KIM

The Singapore Exchange (SGX) has raised the amount of cash that firms must pledge to cover trading positions ahead of expected market volatility following the outcome of the historic Brexit referendum.

The Straits Times understands that the requirement applies to all derivatives clearing members with open trading positions with the SGX.

The result of Britain's vote on whether to leave the European Union is expected to become clear some time this morning.

"SGX has been assessing the potential impact of the UK's referendum on the country's EU membership. 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," said SGX chief risk officer Agnes Koh.

"This is a standard measure we take into consideration as a matter of course, to proactively address event risk and to protect the participants of our market," she told The Straits Times yesterday.

The SGX will continue to monitor market developments and may make further necessary adjustments, she added.

The SGX is the first Asian exchange to publicly confirm its risk management measures.

When asked about its contingency plans yesterday, a spokesman for Hong Kong Exchanges and Clearing said it "does not comment on details of its standard risk management measures or any additional risk management measures it might introduce".

Derivatives markets trade around the clock and some experts expect indications of the outcome of Britain's vote as early as 5am Singapore time.

Some banks and brokerages have taken their own precautions ahead of the vote. Phillip Futures has lifted margins for the British pound, euro and gold-related forex and futures trading products in view of possible volatility, said Mr Daniel Low, Phillip's senior manager for futures.

Mr Michael Tan, head of treasury at CIMB Bank Singapore, said it is also holding extra liquidity, among other things. "For customers who have exposure to the euro zone, we have issued notices on the possibility of non-fulfilment of orders, (and told) them of a higher margin requirement on the pound and euro."

UBS' foreign exchange trading desk in Singapore would be fully staffed by 5am today, with traders starting an hour earlier, said Mr Anthony Hall, regional head of foreign exchange for the Asia-Pacific at UBS Group. "Other functions within the bank, including IT and operations, are ready and gearing up for higher volumes," he added.

Asked about its plans, Mr Andrew Ng, group head of treasury and markets at DBS Bank, said the bank has ensured that it has "ample liquidity to cope with any market volatility and will be deploying (its) full team of traders on the trading floor".

UOB said it has raised its margin requirements in line with the industry. Mr Lee Chee Pin, head of group global markets at UOB, said its sales representatives and traders will be extending their working hours to assist their clients. "For our colleagues on the early shift, they do not have to worry about breakfast. They will have oodles of their favourite hot noodles when they arrive."

A version of this article appeared in the print edition of The Straits Times on June 24, 2016, with the headline 'SGX raises trading margins to protect against potential volatility'. Print Edition | Subscribe