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bump in the night: fx flash crashes put regulators on alert

by:QY Precision      2019-10-28
London/New York (Reuters)-
The frequency of Flash crashes is below $5. 1 trillion-a-day (£4 trillion)
Foreign exchange market regulators are scrambling to find answers.
In the world money market, sudden, violent, and often rapidly reversed price movements are now frequent --
Often in so-
Known as the \"magical moment\" in 5-
At six o\'clock P. M. New York time, local currency traders have been cut off and colleagues in Tokyo have not signed.
Two major crashes this year hit the yen and the Swiss franc respectively, and given the importance of currency pricing to trade, investment flows and the global economy, policymakers are concerned that financial stability could be significantly disrupted.
\"The question is, is this a new normal, or is it a canary in a coal mine?
Fabio natarucci, deputy director of the IMF\'s monetary and capital markets department, said (IMF).
\"We have seen an increase in the frequency of these events, so this may point to a major liquidity stress event at some point in the future.
\"Liquidity is tight,\" natarucci said.
Market terms with insufficient quantity of buy and sell orders-
It is clear that a few days before the big crash, the IMF is creating a monitoring tool that can predict the time of the next crash.
Reflecting official unease, this year at the Federal Reserve Bank of New York\'s foreign exchange market Liaison Committee, a forum for central bankers and market participants, flash crashes are a topic of constant discussion.
Bankers and policy makers agree that,
Wide switch to machine-
Trading in the foreign exchange market is behind the scenes of the frequency and severity of price fluctuations, which means that there may be further crashes.
A G10 central bank official said: \"Our pessimistic view is that this technology will become an increasingly important part of the foreign exchange market, and we need to strengthen monitoring . \" He declined to be named because he was not authorized to speak publicly.
The regulator has not pressed the emergency button yet.
Natalucci said that there is no evidence that flash crashes has so far increased the cost of financing for companies or families, and it makes sense to look at this issue before \"rushing to develop any regulatory measures. Mini-
According to a study by Pragma, the crash has already occurred in the foreign exchange market about every two weeks, and Pragma is a company that creates computer trading models.
In these cases, the price of a currency will change dramatically, followed by a rapid reversal, and the spread between buying and selling prices will suddenly expand significantly.
In a few minutes, the spread is usually reduced.
For graphics of past flash crashes, click: tmsmrt.
The rs/2Wcbxy3 computer model, known as algorithm (algos), largely replaces humans in currency transactions, helping banks reduce costs and increase transaction speed.
These models are designed to execute transactions smoothly by breaking down orders into small pieces and searching for a platform with sufficient liquidity.
But when market conditions change, problems arise, for example, when trading volumes suddenly collapse or volatility spike, just as the UK has long tried to get rid of the EU.
At this time, algos are often programmed to shut down.
Two senior central bank officials, who declined to be named, said the \"killing switch\" ran out of liquidity.
In addition, due to the scattered foreign exchange market relying on the constant price quotation of Argos
An estimated 70-
Trading platform-
A wide range of closures led to a sharp drop in volume, making price movements even more intense.
On January 3, after the Tokyo stock market closed, the yen suddenly soared against the dollar, the first obvious collapse this year.
In seven minutes, the Australian dollar rose 8% against the Australian dollar and the Turkish lira rose 10%.
The second time was in February 11, when the Swiss franc rotated wildly, making an unexplained short jump on the euro and the dollar.
Reserve Bank of Australia (RBA)
According to the report, several episodes of flash episodes were recorded in wizard hour.
In October 7, 2016, it was during this period of low liquidity that sterling plunged 9% in early Asian trading to about $1. 14 from $1.
Within 26 minutes
RBA\'s analysis of all of these flash crashes concludes that the algorithmic trading strategy may be \"amplifier \".
For the graphics of the January 3 yen lightning crash, click: tmsmrt.
Rs/2 wise human traders will be able to discover opportunities from market turmoil --
Free fall buys a currency
This will help resolve it.
But these days, there are far fewer people around.
All forex orders on the platform EBS are up to 70%, one of the two top venues for currency trading, now from algorithms.
In 2004, all transactions were conducted by human beings.
As banks continue to face cost cuts andfinancial-
The crisis rules make the transaction more expensive, and there is no indication that the company will hire additional employees or deploy existing employees to graveyard shifts.
On the contrary, when some people know that the trading volume will be very light, such as a major holiday, they will try to avoid trading.
At the same time, machines are expected to become more dominant.
Pragma has just launched a deal
According to Curtis fiver, the company\'s chief business officer, the deliverable forward is a derivative used to hedge against the risk of illiquid currencies, especially in emerging markets.
Emerging market currencies traded in the absence of liquidity, previously the mainstay of voice traders.
\"Bank forex trading is a difficult business because spot trading is very commoditized and revenue is squeezed,\" said John Marley, senior currency advisor for smart money business . \".
\"In addition, the bank has recovered its own trading unit due to the additional capital required and lower risk preferences.
\"For the graphics of G10 forex traders, click: tmsmrt.
The ability of Rs/2 Elpkvq policymakers to understand and influence currency movements is hampered by the free nature of the foreign exchange market, which is unregulated, private and decentralized.
The foreign exchange global code was developed by central banks and private sector participants to promote a fair and open foreign exchange market, but was not legally binding.
Policy makers in the foreign exchange market are still at the stage of discussion compared to the stock market, where regulators have been able to put in place measures to try to curb drastic price fluctuations.
Flash crashes has been placed on the agenda of the last two Foreign Exchange Committee meetings, an industry group sponsored by the Federal Reserve Bank of New York and a meeting of the Global Foreign Exchange Committee (GFXC)this month.
\"It is important for us to use this forum to understand the flash events and their causes and how to apply the principles of global code to promote a fair and effective foreign exchange market, simon Porter, executive vice president of the Federal Reserve Bank of New York and chairman of GFXC, told Reuters.
Central banks may intervene to ease long-term volatility in the money market, but it will be controversial.
Nicola Markoff, senior economist at Pictet Asset Management, said: \"The primary task of most central banks is price stability, and the secondary task is financial stability . \".
\"As long as the big moves within these days do not affect financial stability or consume inter-bank liquidity, the central bank will monitor these dynamics and not respond to the big moves within the day.
It could also be expensive.
In 1992 the British failed to defend the pound and lost about 3.
According to the Ministry of Finance, 3 billion
May be in vain.
\"I doubt whether the central bank can prevent these lightning crashes to a large extent, because the previous events were the result of the complete depletion of market liquidity, resulting in some large fluctuations, neil Meller, senior FX strategist at Bank of New York Mellon, said.
\"Unless these issues are addressed, we will continue to see this price fluctuation.
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