On 23 June 2016, the UK will vote on a referendum (i.e., BrExit) to decide whether to remain a part of the European Union. This vote is expected to create substantial market volatility in the days leading up to the vote and perhaps even greater volatility should the final vote be for the UK to separate from the EU. The market consensus suggests that separation would lead to a weaker GBP, lower equity prices in the short term, and a possible secondary adverse effect on the EUR due to the precedent setting event of a country leaving the EU.
In anticipation of this volatility, Investors Europe (Mauritius) Limited will be increasing margin across a range of products, as follows:
- GBP currency/assets: maintenance margin 7.5% (now 2.5%), initial margin 12% (now 9%)
- EUR currency/assets: maintenance margin 5% (now 3.0%), initial margin 5% (now 4%)
- GBP/EUR currency futures: same margins as for spot FX above
- GBP/EUR currency options: scanning range for maintenance margin will increase to 7%
- FTSE index derivatives: scanning range for maintenance margin will increase from 5.6% to 8%
- GBP denominated stocks: portfolio margin maintenance of 20% (already in place)
- CFDs on GBP denominated stocks: same as the underlying stock
- UK linked stocks (for example, ADRs on UK stocks: portfolio margin maintenance will increase to 20%
These changes will be going in over the next 4 business days with the increases to initial margins occurring first. We urge all clients with substantial positions in products that are considered exposed to the BrExit vote and, in particular those with net short option positions, to prepare for substantially higher upcoming margin requirements and adjust their risk and/or capital positions accordingly.
All the best in your trading,
JR