Exclusive: Barclays reins in foreign exchange trading before referendum result - sources

Thu Jun 23, 2016 10:15am EDT
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By Patrick Graham

LONDON (Reuters) - Barclays stopped accepting new stop loss orders - an essential part of currency trading - on Thursday as it and other banks took action to limit potential losses and cap their exposure to the outcome of Britain’s EU referendum.

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

But it also refused all new stop-loss orders, whether over the phone or through messaging or dealing systems, as of 0600 GMT on Thursday, the clients said.

Such action is extremely rare and a measure of the big banks' concerns that a vote to leave the European Union would roil the market as much as last year's unexpected ditching by the Swiss National Bank of its cap on the franc against the euro.

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 currency services they normally provide to major institutional clients.

The moves are aimed at limiting banks' and clients' 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 disputes between financial firms over hundreds of millions of dollars of losses caused by the franc’s surge on Jan 15, 2015.

"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 (London time today)."   Continued...

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