Lack of abil­ity be­hind crash

The Press and Journal (Highlands & Islands) - - Business -

Badly man­aged au­to­mat­ed­com­put­er­trad­ing plat­forms and in­ex­pe­ri­enced Asian-based cur­rency traders helped drive ster­ling’s flash crash in Oc­to­ber, a re­port has found.

The pound’s 9% plunge against the US dol­lar in the early hours ofOc­to­ber 7 was the out­come of a string of events, ex­ac­er­bated by the fact that the crash oc­curred dur­ing Asian trad­ing hours, thereby in­creas­ing ster­ling’s vul­ner­a­bil­ity.

The in­ves­ti­ga­tion by the mar­kets com­mit­tee at the Bank for In­ter­na­tional Set­tle­ments (BIS) said: “The pres­ence, out­side the cur­rency’s core time zone, of staff less ex­pe­ri­enced in trad­ing ster­ling, with lower risk lim­its and risk ap­petite, and with less ex­per­tise in the suit­abil­ity of par­tic­u­lar al­go­rithms for the pre­vail­ing mar­ket con­di­tions, ap­pears to

“Staff less ex­pe­ri­enced in trad­ing ster­ling”

have fur­ther am­pli­fied the move­ment.”

How­ever, it dashed the­o­ries that the sharp fall was caused by “mar­ket abuse“or “fat fin­ger” er­rors – where a trader en­ters the wrong or­der – claim­ing there was “lit­tle, if any, hard data to sub­stan­ti­ate them”.

Mark Car­ney, gov­er­nor of the Bank of Eng­land, said there were no deep losses in the wake of the crash, but called for ac­tion to be taken to en­sure mar­ket con­fi­dence.

I t was ini­tially thought that a news­pa­per story stat­ing French pres­i­dent Fran­cois Hol­lande would make Brexit ne­go­ti­a­tions tough for Bri­tain – judged to be neg­a­tive for the UK cur­rency – was a main driver of the flash crash. But BIS said the re­port did not pro­vide any new in­for­ma­tion and was more likely to have “ex­ac­er­bated ex­ist­ing volatil­ity”.

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