Order! Order! Pound traders brush up on Parliament as Brexit stakes mount
LONDON/NEW YORK (Reuters) – How would you get an 18-second jump on a big move in the pound? Bone up on your parliamentary protocol.
As if Britain’s unwieldy departure from the Europe Union were not bewildering enough, Brexit has thrown up another conundrum for investors: Parliament.
Centuries-old and often idiosyncratic, the institution is asserting more control over Brexit negotiations. The result is wild swings in sterling during volatile Brexit votes.
Trading off parliamentary debates sounds perilous. But as currency traders have discovered, a little knowledge of the protocols used by the 650 elected members of the lower chamber – the House of Commons – can win them a useful edge over rivals.
Recent high-stakes parliamentary votes have left many onlookers scrambling to interpret often obscure signals.
Not wanting to be caught out when lawmakers next vote on Prime Minister Theresa May’s Brexit deal, traders are brushing up on the practices of Parliament, where members cannot address each other by name and laws are traditionally inscribed on calf skins.
“My boss said ‘forget about the Bank of England, just focus on the MPs,’” an options trader at a UK bank told Reuters, declining to be named.
To get that extra insight, banks have paid ex-politicians to brief traders on Parliament’s inner workings, the trader said.
That follows a trend sparked by the 2016 Brexit referendum that saw investment firms hire lobbyists to brief clients, including Matthew Elliott, a co-founder of the Vote Leave campaign, who joined stockbroker Shore Capital last year.
For a crucial jump on timings, traders said their companies had installed audio feeds directly relaying parliamentary action a few seconds faster than television broadcasts. Traders are also encouraged to follow key lawmakers on Twitter.
So what edge could a savvy trader enjoy over rivals?
Members of the House of Commons vote by walking through different doorways out of sight of television cameras and onlookers. But when “tellers” – officials appointed to verify the count – assemble before the presiding officer, or speaker, it is possible to know the outcome of the vote before the announcement.
By tradition, the winning side always stands on the right facing the speaker.
“The noes have it,” House of Commons Speaker John Bercow bellowed after lawmakers rejected May’s Brexit deal on January 15.
But a trader deducing the outcome from tellers’ signals would have enjoyed an 18-second advantage, an eternity in foreign exchange markets.
Sterling lost 0.3% of its value in that brief window.
The rowdy parliamentary sessions, punctuated by Bercow’s full-throated cries of “Order! Order!” often drag on into the evening and have also seized the attention of traders in the United States.
“I have a hard enough time understanding how the US Congress works, but yes, I have learned a lot about how the [British] Parliament works,” said Minh Trang, senior currency trader at California’s Silicon Valley Bank. “The involvement of the parliamentary house makes for pretty decent drama.”
Sterling plunged more than 10% in the immediate aftermath of Britain’s shock vote to leave the European Union in June 2016.
Market reaction to parliamentary Brexit votes has been more muted but the drama has underscored the value of human traders in a market increasingly dominated by electronic platforms.
Banks in London have provided sleeping bags and pizza for analysts drafted in overnight to figure out for clients how parliamentary amendments could shape Brexit.
But some are wary of trading on unspoken rules in boisterous parliamentary sessions.
Confusion broke out during a January 29 vote, when lawmakers voted on seven amendments, or changes to the withdrawal process, including an attempt to greatly reduce the chances of a disorderly Brexit.
One of the tellers briefly stood slightly to the left of the speaker while waiting for the result – indicating the amendment had been voted down – before eventually switching to the right.
Cheers erupted as lawmakers realized the vote had gone the other way.