Today’s Irrational is very much based upon the ethos in which the accolades were imagined – in other words it’s based upon nothing more than its ability to irritate me. If we are being honest, this year has not been a vintage one for headlines – I don’t know if it’s me but I sense the world is getting worn down by the constant bickering amongst politicians, most of whom turn to (at best) half truths when challenged. Throw in an increasing wariness of publicly stating anything humorous for fear of upsetting someone (which is very easy to do, another facet of today’s world seems to be extreme sensitivity) and the quality of headlines we saw just a year or two ago have gone missing.
A new paper published by the UK’s Financial Conduct Authority (FCA) claims to throw new light on events surrounding the sterling flash crash of October 2016 by being the first paper to use trade reports to the FCA under EMIR to analyse how different market participants react in times of market stress and their impact on the liquidity dry-up in a flash crash.
The paper has, however, triggered some confusion amongst market participants thanks to ambiguous terminology, mainly the constant reference to “OTC derivatives”, without specifying exactly what products it is talking about.
Many years ago I interviewed then EBS CEO Jack Jeffery, and one soundbite from that chat sticks with me to this day. When asked about his growth ambitions for what was already the biggest spot platform he answered simply, “Credibility in all currency pairs”.
Under its new guise of Nex Markets I am told the latest attempt is underway to build Cable market share, but I would not be surprised if it represents something of a controversial move and may actually cause people to question whether EBS Market can ever be relevant in Cable.
One week after releasing analysis of activity around the UK election, and as the first anniversary of the vote approaches, CLS has released analysis of Cable spot volumes during Brexit-related events.
Unsurprisingly the analysis highlights how volumes spike during unexpected events. The data indicate that the Brexit vote, the Cable flash crash of October 7, 2016 and this month’s UK election were the three busiest days for Cable in the last 12 months – closely followed by another surprise event, the calling of the snap election on April 18.
Sterling jumped almost 100 pips today after the British High Court ruled that the UK parliament must vote on Brexit before it is formally triggered by Article 50.
The government is expected to appeal the court’s decision, but in the meantime, sterling rose from 1.2335 at 10am UK time to peak at 1.2494 by 1:15pm, its strongest since the October 7 flash crash.
The other big news in the UK today was that the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain Bank Rate at 0.25%.
On October 7, Cable flash crashed in early Asian trading, leading to chaos in the market and an official investigation into events surrounding the move. Colin Lambert takes a look at what happened.
A few minutes into October 7 UK time, at 12.07.03am to where there are grounds to believe that the transaction is be precise, Cable traded through 1.2600 having fallen 30 points in the previous minute. Just 23 seconds later it traded below 1.2200 and 45 seconds later it had traded at 1.1378 on one platform.
Just two minutes later the market was trading back above 1.2100 and just 10 minutes after the initial move, Cable was trading above 1.2400. The market had “flash crashed”.
Where to start? Well I will get to those industry “experts” who have been arguing with me for the past two weeks (actually months) that liquidity is great in FX later, for now let’s kick off by getting to the crux of the issue. This is not necessarily about whether algos ran wild, or someone ran an option barrier, this is about a(nother) fundamental breakdown of the FX market structure.
The time has come to accept that what happened Friday morning in Asia is a mess of our own making; to take our heads out of the sand and at least acknowledge there is a problem with liquidity in FX markets.
After Cable’s apparent flash crash Friday, analysts are trying to determine what caused the move and the broader impact that it could have.
In a special note put out Friday Australian-based hedge fund Hunter Burton Capital says the sterling moves are being attributed to comments made by French president, Francois Hollande, about Brexit.
“There must be a threat, there must be a risk, there must be a price, otherwise we will be in negotiations that will not end well and, inevitably, will have economic and human consequences,” commented Hollande.
This morning’s flash crash in Cable in which it dropped 9.5% in seconds and the low of which is still disputed raise some interesting questions for the creators of the FX Code of Conduct.
Several sources say that the mayhem was triggered by one account executing a large trade into the market, possibly for GBP 200 million. This was enough to send the market into freefall as liquidity during the already thin early Asian session, thinned out further.
If the order was executed by one account, or even by several accounts on behalf of one customer, questions have to be asked about why they did it then, and how they executed.
Market sources say the low in Cable is being disputed, in spite of what traders say was a clear print at 1.1378 on Thomson Reuters Matching.
A source familiar with the matter says the low trade was a mishit and that the deal is currently being repapered to a new rate.
While several platforms are printing a low between 1.1850 and 1.1950 – something that in itself highlights the level of confusion in the industry, Profit & Loss understands that “at least” 10 trades were executed at 1.1500 on three venues.