Tag: liquidity gaps

liquidity gaps

New Paper Challenges the Perception of Bank Liquidity in FX

A new research note from Pragma Securities is seeking to challenge the perception that banks are increasingly stepping back from providing liquidity to FX markets.
The firm notes in the paper that the “typical narrative” is that? reduced appetite for risk, controls on ?capital at banks, as well as juniorisation of dealer staff have all contributed to this withdrawal that led to an “increased fragility of the FX markets”. The paper adds that the general consensus seems ?to be that liquidity is getting more expensive, and while spreads are? narrow in times of normal volatility, in? times of market stress dealers effectively pull away from the markets, contributing to extreme volatility and events like flash crashes. ?

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.

And Another Thing…

This week’s Bundesbank paper on HFT in bund and equity markets caused a stir – as anything on this subject does of course – and it highlights to me again, how FX is in front of other markets in being inclusive and functional. It is significant that while some regulators want FX to be equities-like in market structure, more are looking to an FX solution – the speed bump – to save equity market problems.
I am not sure we should be talking about speed bumps for the real issue is the dysfunctional liquidity stream.