Dear customer,

We hereby inform you of an upcoming margin rate increase on USDCHF and CHF pairs today to 10%. This is the result of the Swiss National Bank’s implied policy concerning their currency.

Essentially, back in January 2015, the Swiss National Bank had a policy of intervening in the currency markets to maintain a formal “peg” of EUR/CHF at 1.20. They operated a policy of effectively selling Swiss Francs in order to buy foreign currency denominated assets. Under sustained pressure from capital flows as a result of market activity, the SNB removed the peg, which led to a volatility shock that still reverberates today.

In the intervening period, the Swiss Franc has appreciated in value, and there are market rumors that the SNB is looking to maintain EUR/CHF at a rate above 1.05; the implication of this is effectively that there is an implied peg at 1.05. This theory is somewhat supported by the investment activity of the SNB.

It was reported yesterday by Catherine Bosley at Bloomberg that the Swiss National Bank appeared to intervene in the currency market to weaken the Swiss Franc, as indicated by the increase in funds held by commercial banks with the institution for two weeks running.

A closer look at the situation could suggest that the Swiss National Bank implied policy may be under some pressure, with current reserves arguably comparing unfavorably to the reserves held at the time of the January 2015 removal of the EUR/CHF peg.

The reserves of foreign currency denominated assets held by the SNB passed CHF 1 trillion for the first time at the end of July, compared to less than CHF 600bn at the time of the January 2015 de-peg event). According to an article in the Financial Times by Sam Jones, this means that the Swiss National Bank now has an investment portfolio which is larger than most of the world’s largest sovereign wealth funds.

In view of current market views, a 20% devaluation could take place and existing margin requirements do not protect both parties in such a scenario. Therefore, tomorrow at 11am GMT +0 (Friday 20th August 2021), we will be increasing USDCHF and CHF pairs margins to 10% until further notice with the possibility of even further increases if deemed necessary.

In the event you have any questions, feel free to contact us