Saxo warns clients it may hike margin deposits around Brexit vote

(Adds details, comments from IG (LSE: IGG.L - news) )

By Anirban Nag

LONDON, May 25 (Reuters) - Leading retail foreign exchange broker Saxo Bank said on Wednesday there was a "high probability" it would raise the amount customers have to deposit with them to account for increased risks around the Brexit vote.

In an email sent to clients, the bank said the vote -- scheduled for June 23 and which will decide whether Britain stays in the European Union or not -- has the potential for creating sharp movements, including huge price gaps in currency pairs and periods when liquidity will be in short supply in the market.

"Clients have been advised that should there be increased market volatility and liquidity concerns leading up to, during and shortly after the vote, there is a high probability of margin requirement increases, as well as restricted availability of certain trade and order types," said Claus Nielsen, head of markets at Saxo Bank.

The warning comes after a sudden lifting of a cap on the Swiss franc rate against the euro in January 2015 by the Swiss National Bank (NYSE: NBHC - news) saw trading seize up, prices evaporate and the currency's value balloon by 40 percent in minutes, leaving a trail of losses and bankruptcies in the retail trading segment.

Sterling has seen volatile moves in the previous few months and chances are the price swings will pick up further, leaving retail traders who often run highly leveraged positions on trading platforms, rather vulnerable.

The pound shed 11 percent on a trade-weighted basis between mid-November and early April, when it hit a 2-1/2-year low. It (Other OTC: ITGL - news) has recovered around half of that in the past few days as some polls have suggesting Britain will stay in the European Union and as investors price out chances of a rate cut that some were factoring in if Britain opted to leave the union.

STEADY GROWTH

Previously viewed as a sideshow to the wholesale trading between banks and big investment and pension funds that forms the core of the $5 trillion a day global currency market, the retail sector has grown steadily in size and importance.

According to the Bank for International Settlements, retail foreign exchange trading has grown quickly in the past decade and account for nearly 4 percent of daily spot turnover. The largest retail volumes are seen in Japan, with tougher regulatory norms slowing growth in the United States and Europe.

IG, another leading retail currency broker was also reviewing risk management practices before the vote and could tighten margin requirements.

"Given the potential for heightened market volatility as a result of the EU referendum, we will be undertaking a programme of increased margin requirements across a selection of markets to provide additional protection for clients," an IG spokesman told Reuters. (Editing by Jeremy Gaunt)