Exclusive: Barclays clamps down on foreign exchange trade before 'Brexit' results

[June 23, 2016]  By Patrick Graham

LONDON (Reuters) - Barclays stopped accepting new "stop loss" orders, a standard element of trading on currencies, as banks moved on Thursday to limit speculative market moves and cap their exposure to the results of Britain’s referendum on EU membership.

Clients of the UK-based bank, who asked not to be named because the information is confidential, said Barclays had told clients on Monday it would not execute such trades, where the bank seeks to close existing positions for clients at a pre-established price, through its machine-trading algorithms.

Its refusal from 0600 GMT of all new stop-loss orders, whether over the phone or through messaging or dealing systems, is extremely rare and a measure of the big banks' concerns that a vote to leave the European Union would spark similar chaos to that after last year's blowout on the Swiss franc.

Bank of America Merrill Lynch and UBS have both issued communications to clients this week, seen by Reuters, which warn of potential gaps in the services they normally provide to major institutional clients.

The moves are aimed at limiting banks' and client exposure to losses if there are substantial gaps where buyers cannot be found for the pound or other major currencies including the euro, as results of the UK vote trickle in.

Arguments over whether banks could have achieved better prices for stop loss orders were at the heart of legal arguments between financial firms over hundreds of millions of dollars in losses caused by the franc’s surge in January of last year.

"Barclays have advised on Monday that they weren’t accepting stop loss orders via Barx algo execution," a senior trader with one bank in London told Reuters. "Further they are not accepting any stop loss orders from 7am (today)."

A second source confirmed the contents of the communications with the bank’s clients.

The logo of Barclays is seen on the top of one of its branch in Madrid, Spain in this March 22, 2016 file photo. REUTERS/Sergio Perez/Files

A Barclays spokesman declined to comment on the details of the communications with clients but said the bank was taking steps to ensure it served clients’ needs in trading around the referendum including providing extra staff on the night.

Swiss bank UBS, another of the big six lenders who dominate the $5 trillion a day currency market, warned its clients earlier this week it may fail to execute some orders on its electronic trading platform should the referendum affect liquidity or cause extreme volatility.

"Other banks have advised this week that they will be doing everything at their sole discretion in good faith," the first source said.

Sterling rose 1.5 percent in morning trade in Europe, breaking above $1.49 for the first time since last December. The euro gained almost 1 percent against the dollar and 2 percent against the yen.

(Editing by Nigel Stephenson)

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