Don’t Ask These Banks to Execute Brexit Trades They Recommend

Britain Votes Leave: Here’s What Happens Next
  • Bank of America, Societe Generale warn of U.K. vote disruption
  • Usual level of market services at risk, SocGen tells clients

Bank of America Corp. and Societe Generale SA are among banks warning clients that they may be unable to help execute trades at desired prices because of the U.K. vote on European Union membership, even as they continue to advise on how to bet on the potentially disruptive event.

The warnings come amid signs that liquidity in the market is drying up as investors avoid risks that would leave them exposed if chaos erupts after the referendum. A day before Britons cast their ballots, opinion polls show the race is still too close to call.

“We may not be able to provide usual levels of liquidity and pricing in general and on electronic markets in particular," Societe Generale, France’s second-biggest lender, wrote in a client memo seen by Bloomberg. In a similar note, Bank of America cautioned that the decision to execute trades will be at its “sole discretion.”

The uncertainty hasn’t stopped banks from issuing investment advice about Brexit. Bank of America, the second-biggest U.S. lender, recommended hedging against volatility for Thursday’s referendum, while Societe Generale advised investors to go long on the Swiss franc against Norway’s krone.

Non-Tradable Prices

UBS Group AG warned in a note to clients that spreads may widen for both electronic and voice trading and prices may turn non-tradable for periods of time. Yianos Kontopoulos, a UBS strategy analyst, said in client note dated June 21 that a vote to leave the EU could see the pound trade near parity against the euro. Conversely, the euro could fall to around 73 or 75 pence on a vote to remain.

Kit Juckes, global strategist at Societe Generale, has advised clients to sell the yen if they think Britons will vote to remain in the EU, arguing that the Japanese currency is stronger than even real rates suggest.

Barclays Plc also underlined the risk of potential market disruption in a memo to clients this week, according to a person familiar with the memo. A Barclays spokesman declined to comment. Spokesmen for Societe Generale, UBS and Bank of America also declined to comment.

Banks are wary of a repeat of the chaotic swings that disrupted trading in January 2015, when the Swiss National Bank unexpectedly abandoned its policy of capping gains in the franc. The currency rose as much as 29 percent against the euro in the aftermath of the decision.

Avoid Trading

Banks have advised foreign-exchange desks to avoid their own trading and look only to facilitate client orders on Thursday night, according to six traders. A few who are still allowed to put on proprietary trades have been advised to limit positions and assume less risk, two of the traders said.

Investors appear to be heeding these warnings. A Deutsche Bank AG measure of price swings in major currencies has declined from a 4 1/2-year high on June 14. Saxo Bank A/S said it won’t raise foreign-exchange margins further before the U.K. vote, having already boosted them this month amid reduced volatility.

“It looks like our clients are going into the U.K. referendum tomorrow with lower or limited leverage, lower exposure, and a good buffer,” said Claus Nielsen, head of Saxo Bank’s markets unit.

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