As the world awaits the outcome of the United Kingdom's referendum Thursday on whether to remain part of the European Union, some of the major global banks are notifying trading clients that their ability to inject liquidity, or additional capital, into certain key markets will be limited. Central to their worries: potentially extreme volatility in the pound — which traders typically buy or sell against other major currencies, such as the dollar or the euro — that could hurt their balance sheets if they are forced to take the other side of certain client trades.
In recent days, hedge funds and other market participants have received warnings from Goldman Sachs, UBS, Barclays, Bank of America and Citigroup that their ability to place certain buy or sell orders for the pound could be curbed, according to multiple people who have reviewed those notifications. In some cases, according to those people, clients have received more general cautions that the liquidity they'll provide in those markets may also be muted.
"In the event that extreme market moves occur, giving rise to limited liquidity in certain currencies, we may not be able to fill limit orders or take profit orders at the levels, or using the methodologies, expected in normally functioning markets," said UBS in a letter issued to clients in recent days that was reviewed by CNBC. In the note, the bank added that its typical electronic currency trading activities may be curtailed.