PhillipCapital UK joins Saxo in hiking margins before Brexit vote

(Adds details, Saxo Bank's margins)

By Anirban Nag

LONDON, June 9 (Reuters) - Broker PhillipCapital UK said on Thursday it planned to raise the amount customers have to deposit with them because of the increased risk of sharp swings in the run-up to a British vote on membership of the European Union.

The firm, which has $28 billion assets under management, said it planned to raise margin requirements on sterling denominated trades to 10 percent, while the margin on all other instruments would be raised to 5 percent.

They are currently at 0.25 percent.

Currency brokers are increasingly worried about volatility whatever the result of the June 23 Brexit vote, which they believe will generate sharp swings in the pound in thin liquidity.

Earlier this week, Saxo Bank also announced a hike in margins and collateral while other brokers like CMC (BSE: CMC.BO - news) and FXPro are considering whether to raise margins or not.

Many brokers were hit by a sudden lifting of a cap on the Swiss franc against the euro in January 2015 by the Swiss National Bank (NYSE: NBHC - news) that saw trading seize up, prices disappear and the currency's value balloon by 40 percent in minutes. That led to a trail of losses and bankruptcies, especially in the retail trading segment.

"If the UK votes to leave the EU we could experience unparalleled volatility for a period of time and so we are taking this action in the run up to the referendum in order to protect our clients against any extreme market movements," head of derivatives trading Sean Tan said in a statement.

The increase in margin will take place in two stages starting from June 12, with the second increase occurring on June 19, four days before Britons go to the polls.

Leading retail foreign exchange broker Saxo Bank this week told clients to set aside 7 percent of their leveraged pound accounts compared with two percent previously. The change will be in place from June 16.

Traders said raising the margin to 7-10 percent from around 2 percent is significant and is likely to impact trading activity for customers both retail and on the wholesale front, including prime broking clients like hedge funds.

"This huge rise in margins could inject more volatility in the pound," said a spot trader.

Sterling/dollar implied volatility or the cost of protection against swings in the currency over the next month was near its highest since late 2008. The one-month implied volatility was trading at 22 percent, having hit a high of 22.5 percent on Thursday, with demand for options betting on more losses in the pound at record levels .

The rise in volatility comes as sterling has been weighed down since late last year by worries over the referendum. Britain's hefty current account deficit - 7 percent of output in the last quarter of 2015 - makes the economy, and the currency, vulnerable to any pull-back in investment flows.

Major banks have so far kept quiet on the issue but senior sales staff at several of the top ten players who dominate the $5 trillion a day global foreign exchange market say they have been advising clients to provide appropriately for the risk of big gaps in pricing on the day. (Additional reporting by Sinead Cruise and Patrick Graham, editing by Jon Boyle)