“Happy hour with Lasty” Part 2 – Free Fall

Geoff Last

In Part Two of “Happy Hour with Lasty”, senior institutional FX executive Geoff Last brings his 39 years worth of experience to the forefront. A regular series by Geoff, where you can really enjoy his insights from within on a regular basis

Welcome to part two of a new series on FinanceFeeds, brought to you by Geoff Last.

Electronic trading may be the darling of the industry – but only until a “significant market event” occurs.

The event becomes a catastrophe when the Algos start driving the markets into the abyss.

Machines hit prices without emotion and suddenly sanity gets on its horse and rides out of town – without a last look – and straight over a cliff.

What then occurs is an industry-wide Steward’s enquiry about the rate that was hit and the “Risk Premia” the price-maker deserves. The propeller-head boffins are wheeled out to explain their statistical models and why a fill was more out-of-court than Donald Trump’s locker room banter.

We never had this in my day. Even on a 10% swing day like Keating’s Banana Republic comment, or the Black Wednesday Pound drop in 1992. Traders had pride. If you hit someone out-of-court, you called them and they cancelled the trade, or improved to market. Imagine that, a human being talking to a human being and sticking to an unwritten Code of Conduct.

Electronic trading is here to stay but surely there needs to be some rules or sensibility around the way Algos perform and what is officially struck as a High and Low in the market.
We need to get back to the day when there was honour among price-makers.

Last Friday in a thin Asian market the market faced an “event”, the GBP/USD rate dropped nearly 6% within the day. We are still waiting for the actual excuse.

Some blame Brexit comments, others mentioned option positions – or it could well have simply been a case of taking advantage of a thin Asian market whilst China and HK were on holiday.
It hardly matters – the damage has been done and the industry is embroiled in the task of compiling more information than the CSI to see who has been affected.

What CSI’s Lieutenant Horatio Caine and I have discovered from talking to our “sources” on the street is that one LP quoted so wide, I think their Algo writer took in the year’s range, then multiplied it by the Global eFX Head’s annual bonus and made that the quotable spread. Then they stuck clients when that price was hit in error.

Imagine if this was 20 years ago and their trader had to justify that decision to his peers at the pub.

Back then, he would have been shamed out of the market … well, at the very least, out of the pub. Maybe they should be now. If only the industry would name names.

Looking forward, these “events” will occur in the future and the same Steward’s enquiries will happen.

Perhaps the “FX Global Code” may give some clarity on rate fixing.. errr I mean determining a rate.

That could set the cat amongst the pigeons.

Geoff Last

Director, Institutional Liquidity

Email: [email protected]

Phone: +61 2 9083 1333

Skype: institutional.invast

Website: www.invast.com.au

Geoff Last is Director of Institutional Sales at Invast Global, a leading multi-asset brokerage and prime services provider based in Sydney. With over 36 years of experience in interbank FX markets, Geoff previously worked as a trader and broker at Westpac and Citibank, and was the first trader to make the market when the AUD/USD originally floated in 1983.

At Invast, Geoff brings his intimate knowledge to the PurePrime facility, specialising in optimised FX solutions for brokers, hedge funds, HFTs and professional traders. This Prime-of-Prime solution aggregates the very best of bank and non-bank liquidity to deliver fully customisable streams for FX, Metals and CFDs.

Backed by a listed Japanese parent, Invast has designed a suite of trusted collateral solutions that provide clients with unparalleled transparency and choice. This is supported by bespoke connectivity options, including servers in three Equinix locations and DMA connectivity to over 30 global stock exchanges.


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