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By Steve Slater
LONDON, June 22 (IFR) - Enter at your peril: investmentbanks are warning clients to beware of volatile andunpredictable markets at the end of this week around Britain'svote on whether to stay in the European Union.
Banks including HSBC, UBS, Bank of America Merrill Lynch andMorgan Stanley have sent notes to clients warning them of theperils of illiquid trading conditions, which could disrupt thelevel of execution, liquidity and pricing they offer.
"This is an important event which will most likely impactfinancial markets through increased price volatility or lowermarket liquidity," HSBC said in a memo to clients this week,seen by IFR.
"Given our previous experience of events with significantmarket impact, we are writing to our clients to alert you to therisk of disruption to services as a consequence of increasedmarket illiquidity and volatility," the note said.
HSBC said clients who trade on electronic platforms couldsee the activation of safety features, which could affectexecution.
UBS had a similar warning in a memo to clients,
"In the event that extreme market moves occur in anenvironment of limited liquidity, our principal spreads maywiden for both electronic and voice trading, liquidity mayreduce and prices may turn indicative (i.e., non-tradable) forperiods of time," UBS said.
"In the event that extreme market moves occur, giving riseto limited liquidity in certain currencies, we may not be ableto fill limit orders or take profit orders at the levels, orusing the methodologies, expected in normally functioningmarkets," it said, adding it may adopt other approaches it deemsappropriate and feasible.
Other banks expressed similar caution.
Britain's Financial Conduct Authority refused to say if ithad instructed firms to send out warnings to clients.
Banks are warning clients more regularly than in the past ifthey expect dramatic price moves, especially since huge swingsin the Swiss franc in January 2015 led to conflicts betweenbanks and their clients due to the absence of market prices forseveral minutes.
Bankers said it was good housekeeping and reflected a pushby regulators and banks for greater transparency and to try tohead off any issues around conduct.
Britons vote on Thursday on whether to remain in the EU orleave. The latter, dubbed Brexit, could create some of the mostvolatile markets in London in decades, especially in currencymarkets but also in bonds, derivatives and equities, bankershave said.
Banks in London will be staffed overnight with traders,salespeople, economists and FX strategists, in addition to theirregular 24-hour trading operations, given the potential for bigswings as results emerge on the tight race.
Voting on Thursday will close at 10pm London time.Broadcasters are not conducting exit polls as the margin oferror is deemed to be too large. The majority of the 382 localcounting areas are expected to declare results between 2am and4am.
Banks including ING and Societe Generale have also sentwarning memos to clients, but it is not just European banks ontheir guard.
Bank of America warned clients of possible delays to theirtrades and temporary suspensions if markets are volatile.
Morgan Stanley asked clients to tell them about proposedchanges to their limits for cash and derivatives by the start ofthe trading day on Wednesday. (Reporting by Steve Slater)
