As the FX industry continues to adjust to the environment which followed the rapid appreciation of the Swiss franc on January 15 as a direct result of the Swiss National Bank having removed the 1.20 floor on the EURCHF, Saxo Bank has today announced that it intends to make margin increases on certain instruments.
The company has raised the amount of collateral investors have to post upfront, as a percentage of the trade by 3%, on average, on currencies from the Colombian peso to the Indian rupee.
In a report today by the Wall Street Journal, it was stated that Saxo Bank has conveyed to its clients that it would increase margin requirements for a wider range of currencies as volatility in foreign exchange markets rises and worries over sudden moves in managed currencies mount.
“If currencies are pegged, they have the potential to do bigger moves,” said Claus Nielsen, head of markets at Saxo Bank. “You don’t know how far they will go, and sometimes you don’t even know which direction they will take.”
Although this particular increase in margin requirement does not apply to any major currencies, Saxo Bank has already adjusted margin requirements on the US dollar, euro, Swiss franc and Japanese yen by amounts between 1% and 2% on January 19 and 21, with the firm having reported over $100 million of expected exposure due to the event on January 15 which was a day of extreme volatility, creating many instances of negative client balances across several brokerages and banks, and indeed, some casualties.
Saxo Bank, whilst having experienced this level of exposure, remains well capitalized and continues its business as normal, whilst taking a conservative approach to risk management to mitigate any effect caused by further extreme cases of market volatility.