The subject of liquidity is very much to the fore in foreign exchange markets again following what has been termed a “flash crash’ in Cable in early Asian trading.
The pair broke through 1.2600 and fell very quickly to below 1.14 before going on a mini rollercoaster ride before finally recovering to 1.24.
Although the move is very much being seen as a flash crash, sources say there was good trading volume most of the way down with markets only getting very thin on a break below 1.1800. The low according to Thomson Reuters Matching, which is the benchmark for Cable high/lows, was 1.1378.
Market sources say the low in Cable is being disputed, in spite of what traders say was a clear print at 1.1378 on Thomson Reuters Matching.
A source familiar with the matter says the low trade was a mishit and that the deal is currently being repapered to a new rate.
While several platforms are printing a low between 1.1850 and 1.1950 – something that in itself highlights the level of confusion in the industry, Profit & Loss understands that “at least” 10 trades were executed at 1.1500 on three venues.
This morning’s flash crash in Cable in which it dropped 9.5% in seconds and the low of which is still disputed raise some interesting questions for the creators of the FX Code of Conduct.
Several sources say that the mayhem was triggered by one account executing a large trade into the market, possibly for GBP 200 million. This was enough to send the market into freefall as liquidity during the already thin early Asian session, thinned out further.
If the order was executed by one account, or even by several accounts on behalf of one customer, questions have to be asked about why they did it then, and how they executed.
After Cable’s apparent flash crash Friday, analysts are trying to determine what caused the move and the broader impact that it could have.
In a special note put out Friday Australian-based hedge fund Hunter Burton Capital says the sterling moves are being attributed to comments made by French president, Francois Hollande, about Brexit.
“There must be a threat, there must be a risk, there must be a price, otherwise we will be in negotiations that will not end well and, inevitably, will have economic and human consequences,” commented Hollande.
Where to start? Well I will get to those industry “experts” who have been arguing with me for the past two weeks (actually months) that liquidity is great in FX later, for now let’s kick off by getting to the crux of the issue. This is not necessarily about whether algos ran wild, or someone ran an option barrier, this is about a(nother) fundamental breakdown of the FX market structure.
The time has come to accept that what happened Friday morning in Asia is a mess of our own making; to take our heads out of the sand and at least acknowledge there is a problem with liquidity in FX markets.
On October 7, Cable flash crashed in early Asian trading, leading to chaos in the market and an official investigation into events surrounding the move. Colin Lambert takes a look at what happened.
A few minutes into October 7 UK time, at 12.07.03am to where there are grounds to believe that the transaction is be precise, Cable traded through 1.2600 having fallen 30 points in the previous minute. Just 23 seconds later it traded below 1.2200 and 45 seconds later it had traded at 1.1378 on one platform.
Just two minutes later the market was trading back above 1.2100 and just 10 minutes after the initial move, Cable was trading above 1.2400. The market had “flash crashed”.
Sterling jumped almost 100 pips today after the British High Court ruled that the UK parliament must vote on Brexit before it is formally triggered by Article 50.
The government is expected to appeal the court’s decision, but in the meantime, sterling rose from 1.2335 at 10am UK time to peak at 1.2494 by 1:15pm, its strongest since the October 7 flash crash.
The other big news in the UK today was that the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain Bank Rate at 0.25%.