Anatomy of an FX Flash Crash

A new Staff Working Paper published by the Bank of England supports the assertion made in the original investigation by the Bank for International Settlements’ (BIS) that the October 2016 sterling flash crash may have been exacerbated by the temporary suspension of trading on CME’s sterling FX futures. The report also uses a new methodology to measure liquidity during the event and while it concludes that the market behaved as expected during the first few seconds, thereafter the speed of the move, “goes beyond that consistent with our estimates of the likely impact on prices given the quantity of orders to sell sterling”.
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OFR Launches New Monitoring Tools

The US Office of Financial Research (OFR) has launched two new tools aimed at monitoring and measuring the risks and stress levels of financial markets.  The first tool, the Financial System Vulnerabilities Monitor (FSVM), is replacing the OFR’s existing Financial Stability Monitor, which combined signs of vulnerabilities and stress. By contrast, the FSVM focuses exclusively on monitoring vulnerabilities in the financial markets to signal potential risks, while the new Financial Stress Index (FSI) focuses on monitoring the stress levels of the financial markets.
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Bernanke: Geopolitics is the Biggest Risk to the Financial System

Geopolitics represents the single biggest threat to financial markets, warned Ben Bernanke, former chairman of the US Federal Reserve, at an event in Toronto yesterday. Speaking at the Swell event hosted by Ripple, Bernanke noted that the financial crisis of 2007-2008 was so severe because different elements of the financial system has become so interlinked that stressful conditions in one area soon spread to other parts of the system. However, he argued that the financial markets are systemically safer now and that the biggest threats to these markets come from external sources. 
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And Finally…

With apologies to those loyal readers who normally part with their hard-earned cash to read this column, today I am going to make it “free to air” – mainly because I feel there is a message that simply has to get out there regarding FX execution and liquidity. If nothing else, the ongoing Mark Johnson trial in New York is highlighting how there are some seriously poor assumptions made in the wider world about how the FX market really operates.
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Turkish Lira Slumps on US Visa Row

The Turkish lira dropped some 5% at the Asian open today after the US suspended all non-immigrant visa services in its Turkish consulates and Turkey responded as relations deteriorated. Although Thomson Reuters has the official high at 3.7694, multiple sources report trading in USD/TRY above 3.80, with some reporting trades at 3.85 and 3.88. The market had opened at 3.6150. Sources report the market functioned well with good liquidity and reasonable volumes and ticket sizes being executed – spreads were naturally wider.
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Are Cryptocurrencies Edging Towards Mainstream Adoption?

At the very start of June, Profit & Loss published an article looking at why demand for cryptocurrencies had spiked in 2017, with the price of bitcoin rising over 200% between January and the latter end of May. Subsequent to that, demand continued to grow, with the price of bitcoin reaching $4,950 by the start of September. Meanwhile ether – the native cryptocurrency of the Ethereum network – went from $8.29 at the start of the year to $388 by September.
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Brexit and a Different Perspective on Sterling

A new research report from Deutsche Bank highlights a change in the perception of sterling across the three major FX market time zones following last year’s vote to leave the European Union. The article, How Brexit changed how sterling is traded across the world is written by Deutsche Bank analysts Oliver Harvey and Rohini Grover, and it uses intra-day seasonality as the basis for its study. Previous work by the authors had found “strong evidence” of investment biases in the different time zones.
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Gaining an Edge

It is a conundrum of the current foreign exchange market that while the world is awash with events and opportunities to trade, successful traders seem thin on the ground. Tony Sycamore recently left his FX sales role at Commonwealth Bank of Australia in Sydney and – leveraging his background in sales there and BNP Paribas, as well as his time on the prop trading team at Goldman Sachs in Sydney – has established TechFX Traders, a new advisory firm that seeks to provide structure and discipline to individual traders, and ideas to professionals.
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What Does the Future Hold for FX Prime Services?

There has been a substantial shift in FX prime services over the past two years: some FX prime brokers having been pulling back from the space, prime-of-primes have been expanding to fill the gap and now new firms are coming to market offering potential new solutions to the current credit constraints in the market. But how will FX prime services evolve from here? For the Q3 edition of Profit & Loss, we launched a survey to gauge market sentiment regarding this question. It’s not too late to have your say, the survey will close at midnight on July 31st : https://www.surveymonkey.co.uk/r/PrimeServices
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Survey: FX Prime Services

The Q3 edition of Profit & Loss will feature an in-depth special report on FX prime services, looking at the significant changes that have occurred in this segment of the market and how these will impact trading firms in the future. But we want to hear from you about your expectations regarding the future of FX prime services, which is why we're asking you to fill out this 1-2 min multiple choice survey: https://www.surveymonkey.co.uk/r/PrimeServices All survey responses will remain anonymous, but should you choose to include your email address at the bottom of the survey you will receive a free PDF of the special report when it is published in September.
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