Big global banks,
including Morgan Stanley, JPMorgan Chase & Co and Goldman Sachs Group Inc
are bracing for potential tumult on financial markets after Tuesday's U.S.
election.
As the outcome of
the most bitterly fought U.S. presidential elections starts to roll out by
Wednesday in Asia, the regional markets will the first to trade on the results.
As a result,
Asia-focused banks HSBC and Japan's Nomura Holdings Ltd are among
institutions
boosting staff levels, while others are raising the margin requirements for
trading to cope with a possible spike in volume or volatility.
Bank preparations
ahead of the election reflect their experience following Britain's shock vote
to leave the European Union in June, when the S&P 500 fell 3.6 percent the
day after the poll.
In the United
States, Morgan Stanley told staff to consider using stop-loss orders, an
automated trading mechanism that sells an investor's position as soon as a
stock hits a preset level, if the result causes trading volumes and volatility
to spike.
The bank also told
advisers in its wealth management unit to prepare for election-related
conversations with clients and pointed them to relevant pieces of research,
according to a Nov. 7 memo reviewed by Reuters.
2 PERCENT SWING
Traders expect U.S.
stock prices to swing by about 2 percent in either direction on Wednesday, the
day after the election, based on the price of S&P 500 index options.
Options on the PowerShares QQQ Trust Russell 2000 ETF, are pricing similarly
large swings before the week is out.
Some banks are
projecting a more extreme drop in the event of a victory for Republican Donald
Trump, with Citigroup Inc estimating that a Trump victory could trigger a 3 percent
to 5 percent sell-off for the S&P 500.
U.S. stocks rose on
Monday as Democrat Hillary Clinton’s prospects brightened after the Federal
Bureau of Investigation said it would not press criminal charges related to her
use of a private email server while secretary of state.
Investors have
tended to see Clinton as a more status quo candidate, while Trump's stances on
foreign policy, trade and immigration have unnerved the market.
The "market
pretty much told you who was going to win today," said one capital markets
official at a major bank who was not planning any extraordinary staffing
measures.
Another official at
a rival bank said Monday's 2.2 percent rally in U.S. stocks had lowered Wall
Street's collective angst over the election from "DEFCON 4 to DEFCON
2," referring to the U.S. Defense Department's levels of alert.
ASIA IMPACT
Brokerage Nomura
said in a report on Monday the election was the largest "known
unknown" markets have had to contend with since the global financial
crisis. It said a Trump victory would likely lead to a more than 6 percent drop
in Asian equities.
The election could
result in both higher trading volumes and higher volatility as it's a bigger
event for investors in this region than Brexit, said Stephane Loiseau, head of
Societe Generale's Asia Pacific cash equities and global execution services.
It plans to increase
front office, back office, and technology staff, "ensuring we have a clear
escalation system for handling decision-making", and possibly raising risk
limits."
Chris Weston, chief
markets strategist at IG Markets in Melbourne, said his firm had raised margins
on U.S. indices and some dollar trades to 1 percent from 0.5 percent, but
doesn't expect to see "a massive collapse or spike".
HSBC will bolster
staff on trading floors in major hubs including London and Hong Kong to deal
with client requests, said a person with direct knowledge of the plan.
"Around any
high profile, potentially market-moving event, it is not unusual for some
trading desks to increase staffing levels," said a spokesman for Europe's
biggest bank.
No U.S. stock
exchange plans extraordinary measures to cope with potential market volatility,
exchange officials told Reuters on Monday.
More than half of
the stock and bond fund managers polled by Northern Trust in the third quarter
said they expected the election to cause a large increase in market volatility.
The extra staffing
is similar to what the bank did during Britain's vote to leave the European
Union, he said.
Reuters
Follow Solenzo Blog on
0 Comments