Tag: central banks

central banks

Flash Crashes: A Not So Modern Phenomenon

Following the sterling flash crash last year there has been much industry debate about what the increasingly regularity and severity of these events means for FX market participants and whether anything can be done to prevent or mitigate their impact in the future.

According to Neil Crammond, risk manager for FX at Avem Capital, part of the reason why these flash events are occurring is simply that markets aren’t used to the levels of volatility that used to exist prior to the financial crisis and the implementation of quantitative easing by a number of central banks.

“I think that the problem with the modern FX market is that pre-2008 if you came in every day and someone said to you that “we’re going to have a 300 tick move in the cable every day”, you’d trade according to that,” he says.

And Finally…

Today’s column is definitely not one for the teenagers – indeed it looks at an issue only those of us of a (ahem) certain vintage, will remember.
I was fascinated to read over the weekend that there is a something bubbling up in Malaysia over FX losses made by the country’s central bank in the early 1990s. Apparently the issue has re-emerged as a whistle blower now claims that the bank lost $10 billion trading and that there was no official investigation.

Central Banks: Both Killers and Causes of FX Volatility

Bob Savage, CEO of CCTrack Solutions, talks to Profit & Loss deputy editor, Galen Stops, about why geopolitical unrest this year hasn’t translated into more FX volatility.

This year has been marked by a high degree of geopolitical unrest and uncertainty, with Britain voting to leave the European Union, Italian banks struggling ahead of an important referendum later this year, questions being raised about the future of Europe and a divisive US presidential election.

Meanwhile the war in Syria continues, ISIS has not been defeated, Russia is considered to be actively attempting to expand its sphere of influence and there is the suggestion that some long-time US allies in Asia – such as the Philippines – could drift closer in their relations to China in the coming years.

And Another Thing…

There seems to be general acceptance that last week’s flash crash in sterling merely highlighted what we have known for so long – there is a growing structural problem in FX markets.
Identifying a problem and solving it are, however, two entirely different things and in spite of the spirit of innovation reawakening in foreign exchange markets, my sense is that whilst the solution I propose here is unpalatable to some in authority it may help central banks better understand markets and curb flash events