Ruble Carnage Continues as Brokers Halt Trading, Cut Margin

After the rapid decline the Russian ruble has experienced following the Bank of Russia’s emergency interest rate hike of 10.5% to 17.0%, the currency's price continues to tumble. The USD/RUB has now risen over 12% to just around 73.00, well above its low of 60.80 achieved in the moments after the rate hike.

Brokers are reporting that the volatility has caused banks to remove pricing and Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term from the currency, thereby limiting the ability for hedging customer traders. As a result, broker customers have reported problems with order execution throughout the day, with at least two firms, Alpari RU and eToro, stating publicly earlier to clients that they have halted trading in buying the currency due to limitations from liquidity partners. Alpari even went further and has just now announced it is stopping all trading on USD/RUB and EUR/RUB.

Liquidity available but with wide spreads

The market, though, isn’t completely shut down. Several market data vendors, including LMAX, continue to be providing continuous price feeds and trading today. As a result, at many brokers, trading in the USD/RUB is business as usual, just much more volatile. However, pricing has been consistently wide, with 1-2 ruble spreads the norm much of the day. Some firms have announced that they are cutting leverage going forward in the ruble.

Nonetheless, despite customers reporting problems at several brokers, traders on the whole are benefitting from the spike in prices (those that can close positions). At eToro, their sentiment reading shows customers long/short ratio at 89%/11% while other brokers have indicated to Forex Magnates that clients are overwhelmingly long.

Philippe Gelis, CEO and co-founder of Kantox, commented on the wider situation: "For companies concerned about rouble volatility, they should aim first and foremost to protect themselves from currency risk via foreign exchange hedging products such as forward contracts to stave off the threat of further rouble depreciation against the US dollar and euro. However, many FX Liquidity Providers Liquidity Providers A liquidity provider (LP) constitutes an individual and/or an institution that functions as a market maker in a given asset class. Broadly speaking, liquidity providers will act as both the buyer and seller of a particular asset, thus making a market. In the equities space, many stock exchanges rely on liquidity providers who make the commitment to provide liquidity in a given equity. These liquidity providers commit to providing liquidity in the hopes that they will be able to make a profit on A liquidity provider (LP) constitutes an individual and/or an institution that functions as a market maker in a given asset class. Broadly speaking, liquidity providers will act as both the buyer and seller of a particular asset, thus making a market. In the equities space, many stock exchanges rely on liquidity providers who make the commitment to provide liquidity in a given equity. These liquidity providers commit to providing liquidity in the hopes that they will be able to make a profit on Read this Term are now withdrawing hedging options on the rouble due to extreme volatility in the currency, similar to what occurred in 1998 when RUB convertibility stopped completely. In the next few days or weeks a recurrence of events in 1998 is a very real possibility – a complete halt to any transaction be it spot or forward."

Broker Updates

Looking ahead, several brokers have forwarded trading updates in regards to the ruble.

Saxo Bank: Trading continues with no halts during the session. But margin is being increased Wednesday to 20% for the first EUR 300,000 of clients margin collateral - previously it was 4% - and 40% for margin collateral above EUR 300,000 – which previously was 8% (effectively, maximum leverage cut to 5:1 from 25:1).

FXCM: Will discontinue trading in the USD/RUB tomorrow as they stated, “Due to the extreme instability in the Russian Ruble, FXCM will be discontinuing trading in the USD/RUB pair beginning Wednesday, 17 December. FXCM expects that key Liquidity Providers will stop pricing this pair as early as this week in anticipation of the Russian government potentially enacting currency controls.”

RoboForex: Trading suspended until tomorrow with ongoing trading limited to daily sessions of 9AM to 6PM until the end of the year. At that point trading in the USDRUB will be suspended until January 11th.

GAIN Capital: "Due to highly volatile market conditions in USD/RUB, the required margin on new and existing USD/RUB positions will increase to 20% (5:1 leverage) effective 8am ET on 17th December 2014. During this period of instability, USD/RUB spreads may widen and significant price gaps and periods of illiquidity may occur."