Guest Editorial: How the Scottish referendum can expose us all

Today marks a poignant turning point in history, which, if Scotland votes to devolve from the United Kingdom and go it alone, will set today’s date as the end of a 307 year era in which Scotland was an integral part of the union. If it does not devolve, however, the entire furore surrounding the matter could well die down completely and be soon forgotten, or raise its head again at another juncture now that the seed has been sown in many minds north and south of the border.

In the advent of the polls, due to take place today, there has been substantial corporate nervousness displayed by Scotland’s financial sector, with large institutions such as Royal Bank of Scotland indicating that it will move its operations to London should Scotland opt for independence from the United Kingdom.

This, in itself, is part of a national effort by many firms and citizens to divest from Scotland and serves to instill fear into the minds of many financial markets participants, however what does this mean for non-bank FX firms?

At TopFX we have a substantial amount of clients who use our services to hedge positions for their brokerage. Over the past several months they have been outlining to myself and my colleagues, that it has been very challenging time for their business as volumes have been tremendously low overall.

However, in the next several days we can see potentially once in a generation volatility with the upcoming referendum in Scotland. At the time of writing this, it is still too close to call upon how the nation will decide. As any follower of the markets would know, an uncertain market is a volatile market. In other words, we are expecting absolute chaos.

Many of us view this as not like the odd surprise in the NFP where you can see a surprise spike in volatility. There are too many unknowns and variables in what will follow the hotly anticipated result.

We have given our Prime Brokerage clients advanced warning of this to keep a close eye on their positions. Moreover, this is something I would extend to any trader for the next several days.

From what we understand, the impact will not just be the following 1 hour after the declaring of the winner, it will be for the following 2 days as fear and uncertainty creep in.

The feedback we are getting from fellow industry professionals in Cyprus, is that many of their clients are opening up positions that which if not properly hedged can send the brokerage into serious financial difficulties. There has never been a better time to assess your customers leverage, and maybe consider hedging with a PB if you are not currently doing this.

We can offer help to any brokerage or corporation that feels they need to have an informal discussion regarding any of the above.

This is a guest editorial by Paul Orford, Vice President of Business Development at TopFX

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