The Bank of England have today published a very enlightening Staff Working Paper from the Bank on the Sterling Flash Crash in October 2016.
The report adds further weight to the argument put forward by an earlier report from the Bank for International Settlements that whilst the movement of the GBP/USD currency pair was due to ‘a confluence of factors’ the impact of the events of the day may well have been exacerbated by circuit breakers on the CME creating greater pressure on other platforms. Is there then a need to reopen the discussion on coordinated circuit breakers across all jurisdictions as called for by the UK Governments Foresight Report published almost exactly 5 years ago (23rd October 2012)
Under the recommendation for circuit breakers the Foresight report said “They are especially relevant to markets operating at high speed. Different markets may find different circuit breaker policies optimal, but in times of overall market stress there is a need for coordination of circuit breakers across markets”
The Foresight report was sponsored by the UK Treasury and commissioned by Sir John Beddington who at the time was the Government’s Chief Scientific Advisor and included lead experts such as “Andy Haldane, Charles Goodhart, Oliver Linton and Professor Dave Cliff”.
Kevin Houstoun Chairman of Rapid Addition was also one of the lead experts and noted today “The FX market is made up of many trading platforms, and this research paper by “Noss, Pedace et al”, seems to indicate we should start to consider the technical challenges of providing coordinated circuit breakers across those platforms”
The original Foresight report can be found here https://www.gov.uk/government/collections/future-of-computer-trading