In a speech in New York last night, Timothy Massad, chair of the US Commodity Futures Trading Commission (CFTC) argued that the changing nature of liquidity is not principally caused by regulation.
Discussing the various impacts of the UK decision to leave the European Union on June 23, Massad said, when discussing liquidity in derivatives markets, that during the vote and immediate aftermath prices did not disappear and market depth was good.
However he added, “We must also recognise that liquidity today has changed. There is an iconic model of liquidity: traditional dealers who use their balance sheets to make a market for their customers regardless of price. Dealers who will catch the proverbial “falling knife”— that is, they stand ready to buy even if prices are rapidly falling. That is not how our markets work today.”