Recently, banks, brokerages, investment managers, and exchanges are all increasing staffing levels to cope with the high trading volumes around the US election day and its aftermath. It is expected that as the election results are unveiled, the market will experience volatility.
Political events could trigger drastic fluctuations, forcing market participants to quickly close positions, thus increasing market, liquidity, and other risks, putting pressure on trading systems and market infrastructure.
Before Election Day (November 5th), Democratic Vice Presidential candidate Kamala Harris and former Republican President Donald Trump are neck and neck in many polls, with the lack of a clear winner intensifying concerns among investors and traders.
Trump has previously attempted to overturn the results of the 2020 election, raising the risk of election disputes. He has indicated that he may not accept the election results if he loses this time.
This election is considered crucial as the policies and perspectives of Harris and Trump differ significantly, potentially having a significant impact on the economy, foreign relations, markets, and global trade.
In a Reuters/Ipsos poll released on Tuesday, Harris leads Trump by a slight margin of 46% to 43%, within the margin of error, with only seven key states possibly determining the outcome.
Grant Johnsey, Regional Head of Client Solutions at Capital Markets at Northern Trust, stated, “We are preparing from a market perspective for at least a week of uncertainty because we don’t know who will win the presidency.”
He said, “This simply means ensuring we have enough coverage to handle larger trading volume fluctuations and managing vacation plans accordingly, as well as preparing for intraday volatility with election news releases.”
Market participants are also working to ensure they are not caught off guard by the surge in volatility. Recent unexpected events include the 2016 UK vote to leave the EU and Trump’s victory over Hillary Clinton later that year.
According to a banking insider, a major US bank is setting up a complete trading platform in New York ahead of the upcoming presidential election day to supplement its global overnight team to meet the anticipated higher demand from clients.
If the presidential election results are delayed, the bank plans to adjust staff allocations as needed.
A source revealed that a large retail brokerage firm is ensuring employees are on standby 24/7 to answer investors’ inquiries and closely monitoring social media sites like Reddit for any unexpected signs.
The source requested anonymity to discuss the company’s plans. He mentioned that the company has reviewed its systems to ensure they can handle sudden spikes in volatility or trading volume.
Chris Isaacson, Chief Operating Officer of Cboe Global Markets, stated that past volatility events such as the COVID pandemic, the 2020 US election, and recent yen carry trades have tested the company’s systems.
He said, “The markets we have built can handle at least twice the peak levels we have observed, so we are very satisfied with the business resilience and continuity before the election.”
He also mentioned, apart from round-the-clock staff, “we will have staff monitoring in real-time during critical periods.”
Data from Bank of America shows that during election years, the Cboe Volatility Index (which tracks the market’s expectation of volatility based on S&P 500 index options) typically rises about 25% from July to November as investors weigh the impact of candidate policy proposals on the market.
However, the “election impact” on October VIX futures is lower this year compared to previous ones.
The New York Stock Exchange and Nasdaq declined to comment.
Nevertheless, many market participants are not willing to take risks.
A source revealed that a large US brokerage firm is adjusting new employee training programs and restricting any activities and meetings that require employees to put down their phones.
Joe Hoffman, CEO of Chicago-based Mesirow Currency Management, believes that having relationship-oriented banking services is crucial when liquidity displayed on screens may dry up, as such services are “really important during times of stress”.
Brian Hyndman, CEO of Blue Ocean Technologies LLC, stated that he has prepared for increased trading volume and volatility but cannot predict which assets will be affected. The company’s automated trading system provides overnight trading services for Robinhood and dozens of other broker clients.
Hyndman mentioned, “Compared to typical overnight trading services, we may need more technical staff to address technical issues and more management and support staff.”
(This article is based on a report by Reuters)