Banks gird for Brexit-style tumult following U.S election

By Markets Reuters

  • The logo of Dow Jones Industrial Average stock market index listed company JPMorgan Chase (JPM) is seen in Los Angeles, California, United States, in this October 12, 2010 file photo.   REUTERS/Lucy Nicholson/File Photo - RTX2E4B4

    The logo of Dow Jones Industrial Average stock market index listed company JPMorgan Chase (JPM) is seen in Los Angeles, California, United States, in this October 12, 2010 file photo. REUTERS/Lucy Nicholson/File Photo - RTX2E4B4 (Copyright Reuters 2016)

  • The corporate logo of financial firm Morgan Stanley is pictured on the company's world headquarters in the Manhattan borough of New York City, New York, U.S. January 20, 2015.   REUTERS/Mike Segar/File Photo

    The corporate logo of financial firm Morgan Stanley is pictured on the company's world headquarters in the Manhattan borough of New York City, New York, U.S. January 20, 2015. REUTERS/Mike Segar/File Photo (Copyright Reuters 2016)

  • A Goldman Sachs sign is seen above the floor of the New York Stock Exchange shortly after the opening bell in the Manhattan borough of New York January 24, 2014.  REUTERS/Lucas Jackson/File Photo

    A Goldman Sachs sign is seen above the floor of the New York Stock Exchange shortly after the opening bell in the Manhattan borough of New York January 24, 2014. REUTERS/Lucas Jackson/File Photo (Copyright Reuters 2016)

U.S. banks, including Morgan Stanley, JPMorgan Chase & Co and Goldman Sachs Group Inc, are bracing for potential tumult on financial markets in the wake of Tuesday's U.S. election.

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Bank preparations ahead of the U.S. election reflect their experience following Britain's shock vote to leave the European Union in June, when the S&P 500 fell 3.6 percent the day after the poll.

Morgan Stanley told staff to consider using stop-loss orders, an automated trading mechanism that is meant to sell an investor���s position as soon as a stock hits a preset level, if the election result causes trading volumes and volatility to spike.

The bank also told advisers in its wealth management unit to prepare for election-related conversations with clients and pointed them to relevant pieces of research, according to a November 7 memo reviewed by Reuters.

Traders expect U.S. stock prices to swing by about 2 percent in either direction on Wednesday, the day after the election, based on the price of S&P 500 index options. Options on the PowerShares QQQ Trust Russell 2000 ETF, are pricing similarly large swings before the week is out.

Some banks are projecting a more extreme drop in the event of a victory for Republican Donald Trump, with Citigroup estimating that a Trump victory could trigger a 3-5 percent sell-off for the S&P 500.

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U.S. stocks rose on Monday as Democrat Hillary Clinton���s prospects brightened after the FBI said it would not press criminal charges related to her use of a private email server.

Investors have tended to see Clinton as a more status quo candidate, while Trump's stances on foreign policy, trade and immigration have unnerved the market.

After the election, Morgan Stanley will hold a call for financial advisers and clients with Chief Investment Officer Mike Wilson on Wednesday morning.

Goldman Sachs is also hosting a call for its private wealth clients led by Chief Investment Officer Sharmin Mossavar-Rahmani and members of Washington lobbying groups Elmendorf Ryan and CGCN Group, according to an invitation sent to clients.

More than half of the stock and bond fund managers polled by Northern Trust in the third quarter said they expected the election to cause a large increase in market volatility.

On Tuesday night, when results begin to come in, JPMorgan will have additional traders on duty in New York to back up its Asian trading teams in case of surges in volume, said bank spokesman Brian Marchiony.

The extra staffing is similar to what the bank did during Britain's vote to leave the European Union, he said.

On Wednesday morning, JPMorgan will hold conference calls to discuss the election results and investment implications with customers, including private banking clients, investment managers and institutional clients.

A Citigroup spokeswoman described similar plans, including overnight staff in New York on the trading floor.

(Additional reporting by David Henry and Saqib Ahmed in New York; Editing by Carmel Crimmins and Dan Grebler)