Brexit: The Long Night of Currencies

Brexit, FX, forex, Credit Suisse, UBS

Canary Wharf, London

The Brexit vote is one of the year’s biggest so-called risk events for banks’ foreign exchange activities. Traders at Credit Suisse and UBS are bracing for an all-nighter after polls close on June 23rd.

In the «City» preparations are underway with major foreign exchange trading banks for an event that will roil currency markets, no matter the outcome.

Britian’s referendum on staying in the European Union or leaving is described by traders as the biggest risk event in the last 25 years, on par with Lehman Brothers’ collapse in 2008 or with the Swiss National Bank’s releasing a peg on the franc against the euro last January.

All Hands on Deck for Fallout

The major difference is that unlike those two events, foreign exchange traders can prepare for a potential Brexit. J.P. Morgan boss Jamie Dimon told staff that the bank would have «teams of people thrown on what that means» to deal with the fallout should Britain vote to leave, «Reuters» reported. 

Forex traders plan to pull an all-nighter, a City banker said, with some banks arranging catering for the night shift and hotel rooms nearby for brief rest periods the following day. Zurich traders have a similar plan: UBS will hold on to its trading book on the night of the 23rd, which it typically hands over to Asia overnight, a senior bank source told

Private Bank FX Trading

At smaller private banks, forex staff plan to arrive in the (very) early hours of the 24th, as exit polls begin taking shape, to prepare for the trading day.

«This is the clearly the main trading event for forex this year, there is no missing it,» a Zurich-based trader told And private banks are also urging their clients to contact their relationship managers to prepare for an onslaught of high volatility and little liquidity – nightmarish conditions for wealthy clients looking to exit at a set price.

UBS and Credit Suisse on Pins and Needles

Current jitters on financial markets is just a precursor of the volatility that awaits should British voters decide they want to leave the EU. While forex trades are expected to be hit first and hard, stock and bond shifts are also expected as strategies are reviewed and positions reallocated.

A spokesman for UBS, which is third behind Citi and J.P. Morgan in a «Euromoney» ranking of forex market share, didn't comment. Credit Suisse, which isn't in the top six, said merely that it is «prepared» for the vote.

Fourth Most-Traded Currency

Consequences of a potential Brexit are difficult to predict for financial markets. In short, Britain must decide whether decoupling from the integration seen in Europe since the second World War would put the brakes on its 2.7 billion franc economy and cast doubt on its future.

Sterling is the world’s fourth most-traded currency with a daily market share of roughly 12 percent and a total volume every day of roughly $5.3 billion.

Spike in Volumes

It can safely be assumed that sterling trades will go nuts in the night from June 23rd to 24th. As an illustration of a major risk event: Swiss stock exchange SIX’s average total daily trading volume is 9.1 billion Swiss francs. On January 15th, the day Switzerland’s central bank released the franc and caused a surge in the currency, volume spiked to 27.7 billion francs.

The Brexit vote also represents a particular kind of stress test for traders and computer trading systems. But the vote is also a rare opportunity to boost business.

Q2 Boost

Trading operations generally thrive in periods of volatility: the more trades are placed, the more commissions are earned by banks. Major currency movements typically require shifts in trading positions and adjustments in client portfolios — all of which benefit revenue.

The major trading event of last year, the unpegging of the franc, provided a windfall for many Swiss banks’ trading activities. Client activity spiked, salvaging an otherwise dismal first-half result.

Next Thursday’s Brexit referendum could have a similar effect on banks, especially after a first half with few trading highlights. The long night of currency trading could become the ray of light that props up the second quarter.

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