New Report Offers “Flash Crash” Definition

Pragma Securities has released a new report that analyses FX spot market data in order to provide a more accurate definition of exactly what constitutes a “flash crash”. Arguing that previous reports on flash crashes “have tended to look at individual events in isolation” and that “discussion of the recent trend at industry events has been correspondingly anecdotal”, the paper attempts to define what a flash crash is and then systematically track the incidences of flash crashes using this definition.
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Bitcoin Breaks the $10,000 Mark

The value of bitcoin (BTC) soared to over $10,000 today, a 900% increase in value from the start of the year. Despite significant price dips in July, September and November, bitcoin has been on a consistent and stark upward trend since January, when it was valued at $1,000 per bitcoin. “Bitcoin has sailed past a number of surprising milestones this year, with the $10,000-mark achieved today the most significant so far. With its rising valuation built on the bitcoin buzz more than real worth, it’s likely that we won’t see bitcoin decline in value until it’s more widely accepted,” says Dennis de Jong, managing director at UFX.com.
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LMAX Exchange Partners with Academia

LMAX Exchange has unveiled a partnership with an academic at the University of Oxford to develop a methodology for consistent evaluation of trading costs across liquidity pools that can be used by the FX industry. Dr. Álvaro Cartea of the University of Oxford’s Mathematical Institute is a leading researcher and published finance expert specialising in high-frequency and algorithmic trading, market quality and financial regulation. Together, LMAX and Dr. Cartea aim to drive forward the industry’s understanding of FX TCA and produce mathematically robust findings of practical value to benefit all FX market participants, the firm says in a statement.
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NBIM Calls for Greater Transparency and Verifiability in FX Markets

Norway’s sovereign wealth fund, Norges Bank Investment Management, is calling for greater transparency and verifiability in FX markets because it believes that changes in the market structure in recent years has exacerbated the informational advantages enjoyed by dealers. It believes this change is required because it is the key to mitigating the impact of these informational advantages, without negatively affecting liquidity in what it describes as "this important market". Inevitably, last look is involved, but the paper also highlights issues around algorithmic controls and liquidity provision.
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Does the Last Look Feedback Show a Shift in Industry Sentiment?

The Global Foreign Exchange Committee (GFXC) has published all responses to its request for feedback on the language set out in Principal 17 of the FX Global Code of Conduct, which looks at the practice of last look. The feedback has been published ahead of an expected decision by the GFXC over whether to change the wording and while it indicates a majority in favour of a strengthening of certain practices involving last look opinion is by no means universally in favour of change.
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Take the Spotlight Asia Survey

The latest P&L Survey is online ahead of our Asian conference swing starting Thursday November 9 in Singapore, through Tuesday November 14 in Hong Kong, ending in Shanghai on Thursday November 16. To accompany our conference agenda, we have published a short survey for readers to complete – the questions have both a global and regional relevance ranging from liquidity conditions, through execution, to clearing and cryptocurrencies.
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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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