Brexit vote triggers shock, silence but market chaos averted

By Nigel Stephenson

LONDON (Reuters) – For some traders it felt like the end of the world, while others greeted Britain’s vote to leave the European Union in stunned silence.

It was an outcome most had ruled out. But on the whole, they said, markets coped well and functioned with minimal disruption.

When London traders left the office on Thursday, sterling was riding high at almost $1.50 and UK shares were up, suggesting confidence Britons would vote to stay in the EU. Bookmakers’ odds put the probability of a “Remain” victory in the referendum at 85 percent.

But as results indicated Britons had opted to quit the EU after 40 years, sterling suffered its biggest fall in the era of floating exchange rates and global share prices sank.

“It’s like the world is about to end,” said a Tokyo-based equity trader at a U.S. bank. “We had a bunch of orders canceled, funds deciding not to act or do anything in this volatility.”

Traders in Asia had come to the office early and some London dealing rooms were staffed throughout the night to handle market moves on the historic vote.

Others had a rude awakening.

“I got up at 3.30 a.m. for some unknown reason and just turned on the TV and suddenly saw what was going on,” said a bond trader at a French bank in London. He immediately drove to the office.

Some banks, wary of a repeat of the chaos that followed last year’s surprise decision by the Swiss National Bank to remove its cap on the franc against the euro, had placed limits on trading on electronic platforms in connection with the vote.

Barclays, one of the biggest banks in the foreign exchange market, stopped accepting new stop loss orders on Thursday and other banks acted to limit their exposure to a vote to leave.

Exchange operator Euronext said it would take special measures in anticipation of higher volatility and volumes.

On Friday, exchanges in Australia and Singapore raised margins on some stocks and bond futures contracts.

Extreme volatility in Japan’s Nikkei 225 triggered the Japan Exchange Group’s circuit-breaker calming mechanism for the first time since May 2013, suspending trading for 10 minutes.

Naeem Aslam, chief market analyst at retail broker Think Forex, said he was in the office from Thursday morning until the final result came through and was greeted with stupefaction.

“The first reaction on the floor was complete silence as it became clear that Brexit was the final outcome … There was a feeling of shock and disbelief,” he said.

SKELETON STAFF

John Wraith, head of UK rates strategy at UBS Investment Bank in London, said most investors had cut back their holdings of relatively risky assets so market moves came in thin volumes.

“It was a skeleton staff (overnight), but shock was the first reaction and it was all hands on deck to deal with the volatility,” he said.

As European markets kicked into gear, there were further big moves. Benchmark German government bond yields hit record lows and European shares were expected to open down 6-7.5 percent.

Rumors — unfounded — swirled that the London Stock Exchange would not open at 8:00 a.m. (0700 GMT) as normal.

In fact, it opened with its usual pre-market auction. A glut of sell orders resulted in a mismatch of bid and ask prices on several stocks, meaning more than half the FTSE 100 constituents did not have opening prices at 8:00 a.m..

Auctions were extended to allow participants time for price discovery and full trading was under way about 20 minutes later.

Half of the stocks on Italy’s FTSE MIB index also failed to open on time as circuit breakers were triggered.

One trader at a European brokerage said the broker market structure held up “very well and was not at all like the old days when the markets would systematically shut down”.

Major European exchanges reported no problems.

“It was a bit fraught on the trading floor because the market was positioned so badly, but it wasn’t like the 2008 financial crisis. It’s not been what I would call panic stations,” said Michael Hewson, chief market strategist at CMC Markets.

(Additional reporting by Denny Thomas, Michelle Price and Saeed Azhar in Hong Kong, Rebecca Howard in Wellington, Aaron Sheldrick in Tokyo, Vikram Subhedar, Jamie McGeever, John Geddie and Dhara Ranasinghe in London; editing by John Stonestreet)