CFTC Commissioner Calls for Regulatory Re-Think After Sterling Flash Crash

A senior member of the Commodity Futures Trading Commission
(CFTC) has called for a “thorough
and unbiased analysis” by global financial regulators of the systemic risk of “unprecedented
capital constraining regulations on global financial and risk-transfer markets”.

In a
statement issued today, CFTC commissioner Christopher Giancarlo repeats his
warning over liquidity risk in financial markets, noting, “The increased risk
is in part due to untested bank capital constraints imposed by US and overseas
bank regulators under the Dodd-Frank Act and similar laws.”

Highlighting
Friday’s flash crash in sterling, which Giancarlo noted is the fourth most traded
currency, he pointed the finger at a lack of tradeable market liquidity that
exacerbated the problem.

“There have
been at least 12 major flash crashes since the passage of the Dodd-Frank Act,”
Giancarlo says. “The growing incidence of these events shakes confidence in
world financial markets.

“We can no
longer continue to avoid the question of whether the amount of capital that
bank regulators have caused financial institutions to take out of
trading markets is at all calibrated to the amount of capital needed to be kept
in
global markets to support the health and durability of the global
financial system,” he states (original italics).

In
repeating his call for greater analysis of the issue, Giancarlo also asks,
ominously, “How big will the next flash crash have to be before we realise that
markets in which few are able to take risks are markets that are very risky?”

Colin_lambert@profit-loss.com

Twitter
@lamboPnL

Twitter
@Profit_and_Loss

Colin Lambert

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