Banks, brokers, and trading platforms are taking special measures to prepare for possible big moves for the pound on Tuesday night as UK parliament prepares to vote on the Brexit deal.
City firms are calling in extra staff, working late, and raising margin requirements ahead of a vote that analysts think could provoke volatility in the pound.
“It will be a case of working late, getting the pizzas in, and watching the mayhem,” Neil Wilson, chief market analyst at Markets.com, told Yahoo Finance UK.
UK politicians will vote on whether to approve or reject prime minister Theresa May’s draft Brexit deal late on Tuesday. MPs are expected to reject the deal, which could spark a sharp drop in the pound.
“Sterling has been consolidating in narrowing ranges, so it is ready to explode in one or the other direction depending on the outcome of the votes,” Fawad Razaqzada, a technical analyst at FOREX.com, told Yahoo Finance UK.
The vote on May’s deal is expected to take place anywhere between 7.30pm and 10pm on Tuesday. As a result, foreign exchange and interest rates trader at investment banks like Barclays and Nomura have been asked to stay late in case of big market moves.
Elsewhere, many trading platforms are putting in stricter margin requirements for clients. Markets.com’s Wilson said his firm would “be monitoring everything closely for sure and assessing margins case by case.” CMC Market’s Michael Hewson said his company would be adjusting margin requirements but did not give details.
Brokers are wary of being caught out by big foreign exchange moves. Currency broker Alpari UK went bust in 2015 after the Swiss franc was unexpectedly unpegged from the euro, sending it soaring as much as 30%. The leverage levels offered to clients at that time meant that the market moves left Alpari insolvent.
Analysts don’t expect anything near the level of volatility in the pound on Tuesday evening, but a 2% shift down if the deal is rejected would not be a surprise. A recent survey of Nomura clients found an average expectation of a 3.9 basis point drop in 10 year gilt yields if the deal fails.
Still, while extra precautions are being taken, the feeling in the city is that Tuesday evening’s vote is ultimately a second tier market moving event.
“We’re not expecting this to be a hugely market moving event, unlike the referendum,” a source at a major investment bank said. The pound fell over 10% against the dollar on the evening of the June 2016 referendum, while the FTSE 100 stock market opened 8% lower the day after the vote.
Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.