By Nigel Stephenson
LONDON (Reuters) - After a five-week campaign that has left Britain's two main parties neck and neck going into Thursday's general election, London's dealing rooms are bracing for days rather than hours of uncertainty.
Banks' financial trading desks traditionally increase staff on election nights to handle impromptu buying and selling of UK stocks, bonds or sterling as election results start streaming in late on polling day itself and into the early hours of Friday.
Most famously in 1992, financial markets were so euphoric about the unexpected return of the centre-right Conservative Party with a large majority that the Bank of England, which issued UK government bonds before the creation of the Debt Management Office in 1997, sold 1.6 billion pounds of gilts through the night from about 2:30 a.m. local time onwards.
But the chances of a decisive outcome this Thursday or even Friday are slim.
Most polls put Prime Minister David Cameron's Conservatives and Ed Miliband's Labour Party a hair's breadth apart, setting the world's fifth-largest economy on track for its second consecutive hung parliament.
Financial dealers are thus left with a conundrum. With no clarity over which party will have the first stab at forming what will almost certainly be another coalition government, they still have to staff the desks on the off chance of an early result. But they are equally braced for days or weeks of bargaining.
"I'll go home on Thursday during the day and get some sleep, then come in for the night and try to stay awake. It worked well for the Scottish referendum and hopefully it will here too," said Ian Stannard, head of European FX strategy at Morgan Stanley (NYSE:MS) in London.
PLANNING FOR UNCERTAINTY
Big banks, including Morgan Stanley, HSBC and RBS (LONDON:RBS), will have some sterling and gilts traders in London outside normal hours, although with many banks able to trade across the globe, the emphasis will be on an early start.
"I'm sure it will be busy on Friday (so) we're better positioned not having a load of tired people who've been sat up all night," said one trader at a custodian bank."
The inability to nail down the exact timing of the eventual formation of a government is partly why this election has left markets nervy but without any election-driven direction.
Britain's FTSE 100 stocks index (FTSE) set a record high as recently as April 27 and sterling
Short-term sterling/dollar volatility
FTSE volatility (VFTSE) is also up, but nowhere near as high as before the 2010 vote or last year's Scottish independence referendum.
A Reuters poll on Wednesday saw little risk to sterling from political uncertainty resulting from Thursday's vote.
With the potential for days, at least, of negotiating between parties before a new government is formed, some investors are biding their time.
"I wouldn't want to give the impression we're completely complacent about it, but we haven't done a huge amount of currency trades or overlays," said Martin Gilbert, chief executive officer at Aberdeen Asset Management.
"(If) uncertainty lasts a long time, that's when markets start to get jittery."
Spread-betting firms, which allow mainly retail investors to bet on the pound or the FTSE, will be open.
"We expect lots of business throughout the evening as the key results come in so we will be making some extra staffing provisions ... on our dealing floor," said IG analyst Chris Beauchamp.
And some traders are keeping weekend plans on hold.
"Most likely into the weekend a number of trades will be closed off and margins will be increased on certain instruments ... We just don't want clients to be caught on the wrong side going to the weekend," said Naeem Aslam, chief market analyst at spread-betting firm Ava Trade.