While I read Friday’s Bank of England Staff Working Paper on the sterling flash crash with interest, I still find myself wondering why we continue to ignore the events of the minute before the crash? Someone was a motivated seller, wouldn’t it be nice to know why that was the case? The paper also highlights one of the more troublesome issues in FX today – liquidity recycling – and that is something that needs a lot more analysis than currently available.
Tag: Sterling flash crash
Sterling flash crash
The Bank for International Settlements’ (BIS) Markets Committee has released its analysis of the 7 October 2016 “flash event”, arguing that a range of factors rather than a single driver catalysed the event.
During the flash event, sterling depreciated by around 9% versus the dollar in early Asian trading, before quickly retracing much of the move.
The new report concludes that “a confluence of factors” cause this flash event, noting that “the time of day played a significant role in increasing the sterling foreign exchange market’s vulnerability to imbalances in order flow”.
A report in the Financial Times claims a Citi trader in Tokyo exacerbated the sterling flash crash on October 7.
The FT report, citing bankers and officials involved in the inquiry, says the investigation into events on that day are focusing “heavily” on the actions of the Tokyo-based Citi trader who allegedly placed multiple sell orders via the bank’s aggregator and “panicked”.
Sources familiar with the matter tell Profit & Loss that while Citi’s name was prominent in the market on that day it was by no means alone.