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Sterling flash crash caused by confluence of factors - BIS

13 January 2017  |  3592 views  |  0 Source: Bank for International Settlements

Report prepared by an ad-hoc Markets Committee working group led by Rebecca Jackson, Liam Crowley-Reidy (Bank of England) and Andreas Schrimpf (Bank for International Settlements, Secretary).

This report investigates the events surrounding the so-called flash event in sterling during early Asian trading hours on October 7. Drawing on granular high-frequency data, it includes a forensic study of the event window, a comparison with similar historic episodes, and a discussion of the relevant policy implications.

The analysis points to a confluence of factors catalysing the move and places significant weight on the time of day and mechanistic amplifiers (including options-related hedging flows) as contributing factors. It notes that the 7 October event does not represent a new phenomenon, but rather a new data point in what appears to be a series of flash events that are now occurring in a broader range of markets than was previously the case. While such events have generally proved short-lived and without immediate consequences for financial stability, the report highlights the risk that flash events undermine confidence in financial markets and stresses the need for further analytical work in this area.

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