Tag: Flash Crash

Flash Crash

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…

Sign up for the new Profit & Loss monthly Insight calls with yours truly to see what I really mean by “sometimes right; sometimes wrong; always certain!” Into the bargain we will throw in a brief section on “Things That Make You go Hmmm…” as well (and it’s not often C&C Music Factory make it into financial journalism).
Oh, and while we’re at it, have we seen evidence that October’s sterling flash crash had nothing to do with a news item?

Unshackling the FX Market

Darren Jer, CEO of MarketFactory, talks to Galen Stops about flash crashes, the new latency arms race and how technology will enable the FX market to keep growing in size.

Galen Stops: What’s going to be the main focus for MarketFactory as a company in 2017?

Darren Jer: Well let me just start by saying that FX is the biggest market that not everyone knows about. In the equities market last year, $114 trillion was traded across all exchanges; in FX, that figure is $1.4 quadrillion. In FX we talk in average daily volume (ADV) numbers all the time so we’re just used to the size of the market, $5.1 trillion per day, but the general public and traders in other asset classes don’t know the degree of notional liquidity.

What Do the Global Code, Brexit and Flash Crashes Have in Common?

This week, Wednesday March 29, Profit & Loss Forex Network London takes place against the backdrop of UK Prime Minister Theresa May invoking Article 50, formally starting Britain’s exit from the European Union. The conference represents a day filled with FX industry experts assembled to discuss everything from the Global Code to Brexit to Flash Crashes to the Liquidity Crunch and much more, kicking off with a panel of experts directly involved in crafting the Global Code, including the Bank of England’s director of Markets, Chris Salmon.

The DNA of a Flash Crash

A new paper uses trade repository data to forensically analyse the Swiss franc de-pegging and while Colin Lambert finds its conclusions are familiar, the paper offers other insights

The story is familiar to anyone in the foreign exchange business – on January 15, 2015, the Swiss National Bank shocked the markets with the announcement it was abandoning its Swiss franc ceiling to the euro at 1.2000. Chaos ensued as EUR/CHF collapsed over 40% before recovering sharply, after which the industry was left to rake over the ashes of what was to many a debacle.

BoE’s Salmon Expects More Surprise Flash Moves in FX

Chris Salmon, executive director, markets, at the Bank of England (BoE), said in a speech today that, while he has confidence in the ability of the FX market to process identifiable risks, he expects to see more surprise flash moves in this asset class.

Speaking at the OMFIF City Lecture in London, Salmon looked at the depreciation of sterling following the UK Brexit referendum result and the sterling “flash crash” that took place on October 7, 2016, to provide insight into how the market is functioning.

And Finally…

Nobody should be surprised to read that the report into the Sterling flash crash of October 7 found it was likely caused by a “confluence of factors” – initial reports in this publication and others covered a wide variety of potential triggers for the event, all of which were credible.
What has surprised me a little, however, is how I find, having read the report several times, I have as many, if not more, questions – perhaps observations is a better word – than I started with.
These questions and observations can be distilled down into four generic themes and a conclusion – Evaluation; the impact of historical events; the necessary responses and lessons; and Asia.

Is Regulation Causing Flash Crashes?

New regulations imposed on banks since the financial crisis could be contributing to “flash crashes”, according to Christopher Giancarlo, a Commissioner at the Commodity Futures Trading Commission (CFTC).

Speaking at ISDA’s Trade Execution Legal Forum, Giancarlo said that when the British pound suddenly dropped 6% against the US dollar in October, this flash crash was exacerbated by a lack of market liquidity.

He continued: “In fact, there have been at least 12 major flash crashes since the passage of the Dodd-Frank Act. The growing incidence of these events shakes confidence in world financial markets.

Flash Crash Trader Fine Endorsed by US Court

A US district court judge has entered a consent order brought by the US Commodity Futures Trading Commission (CFTC) against UK-based trader Navinder Singh Sarao.
Sarao was accused by US authorities of helping to trigger the infamous flash crash in US equity markets in May 2010 and was extradited to the US recently.
The order requires him to pay a $25,743.174.52 civil monetary penalty and $12,871,587.26 in disgorgement. It also permanently prohibits Sarao from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged, and imposes permanent trading and registration bans against him.

And Another Thing…

I am probably not the only person nervously awaiting the outcome of next week’s US election, although I suspect many have much different – and to them much more important – reasons.
My concern is that in spite of it being a “known-unknown” the FX market is facing a major event – and this is on a global scale not the relatively local affair of Brexit – and its recent form when it comes to handling a massive surge of business is not great.