INTL FCStone hikes gold, silver margins on Brexit nerves

NEW YORK (Reuters) - INTL FCStone Inc has hiked the amount of cash customers have to deposit with them to trade gold, silver and sterling futures, a relatively rare step that shows financial firms are bracing for volatile trading ahead of Britain’s vote on Europe.

Gold bullion is displayed at Hatton Garden Metals precious metal dealers in London, Britain July 21, 2015. REUTERS/Neil Hall/File Photo

In a letter to customers seen by Reuters, the U.S. based mid-sized commodities and forex brokerage said it will charge customers 200 percent of the minimum margin set by CME Group Inc for cleared futures for gold, silver, the British pound and euro currency. It was effective on June 16.

Worries about volatile currency markets have become more common since the dramatic moves in the Swiss franc in January 2015, which led to conflicts between banks and their clients due to the absence of market prices for several minutes.

“Increased volatility requires us to take prudent action to protect our clients from increased market fluctuations,” said Group Treasurer Bruce Fields.

“We believe this is in line with what other market participants are doing.”

In recent weeks, PhillipCapital UK and Saxo Bank have hiked in currency-related margins in the run-up to a British vote on membership next Thursday.

But it is relatively unusual for banks and brokers to charge additional margin for precious metals customers, traders said, illustrating how growing concern about the outcome of the vote and the potential for sharp one-off price moves has extended into commodities markets.

The outcome of the vote is seen as increasingly hard to predict.

Exchange margins are based on historic volatility, so the broker adjusted for current or expected market conditions, Fields said.

If other companies follow suit, the additional financial burden on precious metal investors could curb liquidity and roil markets further.

“This move could force some existing positions to liquidate or move elsewhere, which is not something that would be done lightly,” said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

UK shoppers have flocked to the safe-haven metal fearing the country will vote to leave the union, boosting demand for bullion bars and coins.

Bullion prices soared to fresh two-year highs of $1,315 per ounce on Thursday after the U.S. Federal Reserve indicated it would be less aggressive in tightening monetary policy next year.

Speculative investors are holding their biggest bullish position in gold futures in nearly five years, data on Friday showed.

Based on CME’s initial margins, an INTL FCStone customer would have to fork out a whopping $9,900 to trade one contract of gold and $10,560 for one lot of silver. One lot equates to 100 ounces of gold, worth about $130,000, and 5,000 ounces of silver, worth $87,000.

Margins are charged to ensure customers can meet their obligations.