Brexit uncertainty and margin requirement increases: Saxo Bank’s Claus Nielsen speaks

As our news ticker continues to beep throughout the day it seems as though every few minutes there’s an ‘Exclusive’ report about some broker or other raising its margin requirements for clients ahead of next Thursday’s Brexit vote.

One of the first such reports we made on topic, for one of the first brokers to warn clients to get ready to either ante up more margin or cut leverage in their accounts, was for Copenhagen-based retail forex broker Saxo Bank. Back on May 26 we reported on a note Saxo had sent to clients giving them adequate time to prepare for what they believed to be likely margin increases.

So we thought that we’d speak directly with the man responsible at Saxo Bank, Head of Markets Claus Nielsen (pictured at left), and get his perspective on trading during this whole Brexit ‘thing’.


LR: Hi Claus, great to chat with you today. Saxo Bank seems to have led the way with margin requirement increases due to the Brexit vote. Can you say how you came to the decisions you made, and how you chose the new margin levels?

saxobanklogobigClaus: It has been important for us to take prudent measures to reduce our clients’ risk and to be fully transparent and inform clients about the changes well in advance of the UK EU referendum.  Saxo Bank’s vision to democratize trading comes with responsibility.  This responsibility manifests itself in providing broad market access to create as level a playing field for as many investors and traders as possible.

In addition to the new margin requirements, Saxo has launched a number of initiatives including a UK EU Referendum webpage to support clients both in the run-up to and following the event.

The margin levels that we have decided to implement are based on an analysis of how much the forex and the equity markets are pricing in the event. We thereby get a market neutral estimate of the range we can expect to see.

LR: Were clients reducing leverage on their own over the past few weeks leading up to Brexit?

Claus: It has been essential for Saxo Bank to explain to our clients that neither clients nor Saxo Bank benefit from overleveraging and that we, with client interest firmly at heart, are doing our utmost to educate on the range of options available. As the referendum moves closer, we expect clients’ ’ risk-aversion to increase as they consider the use of long options which are unleveraged and can be used to express both long and short volatility as well as directional views.

LR: Do you expect other leading brokers or FX liquidity providers to take similar moves and reduce max leverage they offer to clients? Perhaps some will implement that, but just on June 23 itself.

Claus: I would expect other brokers and liquidity providers to take similar action, but we are proud to take the lead in this regard.

Our approach to a potential Brexit is three-pronged – characterised by transparency, rationality and prudence. It is impossible to rule out bigger moves up to the day of voting, and even potential intraday moves on 23 June. It has therefore been important for us to be transparent and inform clients about the changes in good time. As regards margins, we are seeing the tier one banks starting to effectively double GBP margins to levels around 6-8%.

LR: Do you expect that Saxo Bank will return margin / leverage to their normal levels soon after June 23, assuming that markets behave post Brexit vote?

Claus: As soon as market conditions allow it, we plan to return margins to their normal levels.

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