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UBS currency trading volume hits record as pound crashes

by October 22, 2016 General

SINGAPORE: UBS Group AG, the world’s third-biggest currency trader, said it processed a record number of currency trades during the minutes of the pound’s flash crash this month.

“We processed our highest volume of trades in a minute– it was many thousands of trades and the peak was 50% higher than our previous record volume,” Anthony Hall, the Singapore-based head of foreign exchange, rates and credit in Asia Pacific at UBS, said in an interview this week.

“Everything was compressed into this spike in volume.”

The Swiss bank’s system managed to cope with the surge in trades, Hall said. In the span of just two minutes in early Asia trading on Oct 7, the pound plunged more than 6% against the dollar to the lowest level in 31 years, only to recover later on.

Market participants blamed a number of culprits for the swings, including a “fat finger” human error and computer-driven trading at a time of day when liquidity was particularly thin.

“Everything was compressed into this spike in volume,” Hall said. “We were quoting continuously and our systems operated very smoothly throughout.”

The pound has lost 17% of its value against the dollar this year in the worst performance of any major currency on concern over the impact of the British vote in June to leave the European Union.

Bank of England Governor Mark Carney has asked the Bank for International Settlements to look into the currency’s flash crash.

In the past, one wouldn’t have expected such a sudden move in the world’s fourth-most traded currency, Hall said.

“Now sterling is suffering the after-effects,” he said. “It’s labeled as an illiquid currency. It has to behave for a long time for people to get their trust back in the currency as a liquid currency pair.”

The US presidential election, an interest-rate increase by the Federal Reserve and any policy shift by other major central banks will drive trading activity in the coming months, Hall said.

UBS’s revenues in trading bonds and currencies in the second quarter rose 12% to 461 million Swiss francs (US$464mil), partly boosted by the surprise UK referendum.

Markets are likely to be less correlated with one another should the Fed start to raise rates and other central banks including the Bank of Japan and European Central Bank begin to taper their bond-buying stimulus or turn to fiscal measures to support their economies, Hall said.

That would offer more trading opportunities for clients, he said. Investors have been seeking to profit from any surge in volatility after stimulus by central banks from Europe to Japan had damped price swings.

“Central banks are driving a lot of activity, or the lack of activity, in the markets,” Hall said.

“It’s not as clear now that they would continue on that same path going forward. That could lead to more interesting things happening in the market, which could potentially drive more client volumes going forward.” – Bloomberg