Broker seeks to limit clients' Swiss franc risks

LONDON, June 12 (Reuters) - A Danish online broker has limited the amount its customers can borrow to trade the euro against the Swiss franc, a move intended to limit clients' potential losses if the Swiss central bank fails to defend a cap on the franc's value.

Claus Nielsen, head of markets at Saxo Bank, said on Tuesday that trading the safe-haven franc posed considerable risks to some of its margin-trading clients, especially those who have built significant bearish bets against the franc.

In margin trading, customers borrow money from brokers to buy securities. The practice is widespread in stock and commodity markets.

The bank said increased chances of political and financial turmoil in the euro zone beginning with the Greek elections on June 17 could force the Swiss National Bank (SNB) to drop the cap on the euro/Swiss franc pair, currently at 1.20 francs, and let buyers drive the franc to stronger levels.

It will hike the margin to 2 percent from the current 1 percent from June 14, and double it again to 4 percent from June 21, the bank said.

"We think the 4 percent margin is appropriate given that the risks around the euro zone can escalate and could pose a threat to the peg," Nielsen said. "It is not that we have a crystal ball but investors should be made aware of those risks."

The SNB imposed the cap of 1.20 francs in September 2011 after the franc hit record highs against the euro last year. And though the cap has been breached once in early April, the SNB has said it intends to defend it with all its might.

Traders say the SNB has been buying large amounts of euros while selling the Swiss franc, to keep the pair from breaching the 1.20 franc peg in recent weeks. On Tuesday, the euro/Swiss franc pair was trading at 1.20085 francs, flat on the day.

Speculators, especially hedge funds are increasingly betting through the option markets that as the situation around much of the euro zone deteriorates, the task for the SNB to defend the peg will get tougher.