Saxo Bank renders CHF peg as risky, raises margin requirements

Saxo Bank believes that one of the consequences of the Euro-zone (and Greek) drama is that the CHF may suddenly appreciate, causing it to being de-pegged and severely impact traders who have shorted this currency. Apparently Saxo Bank believes that the CHF potentially poses a considerable risk to some of its clients - and I'd say rightfully so.

With the peg of EURCHF at 1.2000 investors have sold CHF and bought EUR for months, both Forwards and in Options. Clients with short CHF exposure could be negatively affected if major turmoil in the euro or euro-zone occurs. Beginning with the Greek elections on 17 June, the Bank anticipates significant political and financial events to take place over the summer. These events may trigger the SNB to de-peg the CHF and this could result in a larger appreciation of CHF.

As a consequence of the potential risk, Saxo Bank will implement the following margin change for CHF (from email sent to clients):

• The new margin applies to the first EUR300,000 of FX margin collateral. On collateral above the EUR300,000 the required margin will double. The change is scheduled to happen at 17:00 CET on both 14 and 21 June.
• As you might know, we have been relatively sanguine on the CHF and EURCHF 1.2000 peg but the latest developments suggest higher risk of a peg break and a stronger CHF.
• The Bank, therefore, recommends reducing all short CHF exposure over the summer period as the tail-risk in both Switzerland and Europe is rising.

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