How The Scottish Independence Vote Is Impacting the Pound


With the Scottish referendum vote this week, interest in the British Pound increased with the release of any information coming out of the opinion polls. Polls were placing the pro-independence and pro-union camps neck-and-neck going in to the final hours.

On Septmeber 8, British Pound options volume reached 47,266 on a bearish news release that showed 51 percent support in favor of Scottish independence. The Pound broke after the poll showed Scottish indendence in the lead for the first time and options volume on the currency set a new one day volume record.

The pound took a beating on the news, dropping to its lowest point since November and continued its slide from the 171 level in the front month futures, dropping to 160.99.



On September 10  , the option volume spiked again on news that large banks and financial firms planned to move majority parts of their business to England in the event of a “Yes” vote in the Scottish referendum. Standard Life, the Edinburgh-based FTSE company said it would make major changes to its business structure to deal with Scotland seceding.

Open interest in British Pound options continues to grow as the vote nears reaching 159,475 on September 11, an increase of over 54 percent from the prior month!

An independent Scotland intends to use the pound with the rest of the UK in a formal currency union. But the UK government and Labor opposition may not accept the plan. Plan B would be to use the Euro, a separate Scottish currency or use the Pound anyway which means using the pound without a formal agreement.

Average daily volume and open interest are both up month over month as the vote for an independent Scotland approaches. That the Bank of England is not expected to raise rates until Q1 or Q2 2015 also likely contributed to the rise in volume.

The Euro currency also has experienced an increase in volume during this time, but for different reasons. On September 10 ,Euro FX futures traded 611,866 contracts, a 147 percent increase over the prior month date.

Overall Euro FX options and futures have experienced solid growth as the European Central Bank has taken a more dovish stance caused by recent speed bumps in the Eurozone recovery, while U.S. data releases have been mostly positive.

Sean Hayden is Director of FX Products at CME Group.

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