NEW YORK, March 11,
2015 (GLOBE NEWSWIRE) -- FXCM Inc. (NYSE:FXCM), a leading online
provider of foreign exchange (FX) trading and related services,
today disclosed detailed information regarding its systems and the
broader FX market during the January 15th EUR/CHF
Flash Crash. FXCM has compiled data points which demonstrate the
unprecedented and extreme dysfunction of the FX market on January
15th.
For the full recording and presentation
please click here.
The Swiss National Bank's Mishandling of the
Swiss Franc:
On January 15, 2015, the Swiss National Bank (SNB) caused a flash
crash that lead to historic dysfunction never seen before in the FX
markets when it announced that it was completely (not gradually)
removing the 1.2000 self-imposed floor on the EUR/CHF exchange
rate. The SNB's shocking announcement was made without any prior
warning or notice to the marketplace. As the market perceived the
EUR/CHF rate to be real, the abrupt change triggered chaos and a
complete FX market breakdown. In light of the reckless actions of
the SNB, FXCM has since ceased offering any currencies which carry
significant risk due to potential manipulation by their respective
governments either by a floor, ceiling, peg, or band.
Timeline of Relevant Events on January 15
(Morning, Eastern Standard Time):
- 04:30- Swiss
National Bank announces the removal of the 1.2000 EUR/CHF
floor.
- 04:30:47- EUR/CHF
drops below 1.2000 for the first time.
- 04:30:56- 9
seconds later, the major international banks who provide liquidity
to FXCM begin rapidly removing liquidity as quotes go as low as
1.1659.
- 04:30:57- FXCM's
system circuit breakers deploy to halt new quotes and trading.
These circuit breakers are designed to protect clients against
erroneous quotes and off-market trades.
- 04:31:08- 21
seconds following the drop below the 1.2000 floor, only 1 liquidity
provider is quoting FXCM at 1.1094 (1000 pips from the floor
price).
- 04:31:43- One
major international bank is quoting a bid of 1.0037. Another major
international bank is quoting a bid of 1.1556 (1500 pip range in
bids between 2 liquidity providers at the same second). EBS quotes
1.0000 at this time.
- 04:32:41- The
first quote from FXCM liquidity providers below parity - 0.9831.
The EBS quote at this time is 1.08115 - 1000 pips away.
- 04:33:32- One
major international bank quotes a bid of 0.6374. Another major
international bank is still quoting 1.1220 at the same time (5000
pip range between 2 liquidity providers at the same second). There
is no valid quote on EBS at this time.
- 04:35:16- While
there are still no valid quotes on EBS, 3 bid quotes from FXCM
liquidity provider bounce within a 6000 pip range in 2 seconds:
1.1078, 0.5696, 0.9769
- *0.5696 is the lowest quote received by FXCM from
all its liquidity providers
- 04:42:28- EBS
shows a bid quote of 0.9550 one second, then a bid quote of 0.5000
the next second (a difference of 4500 pips). The next new price
shown is 0.9600, five seconds later.
- 04:55:40- The
market finally trades somewhat consistently above parity, but
volatility is still extreme. The range of bid quotes between major
FX industry ECNs is 0.87 to 1.0001 (1300 pips).
- 05:10:00- The
market begins to stabilize around 1.0400 level. Spreads and
consecutive price ticks are still above 100 pips. The range of bid
quotes on major FX industry ECNs is 1.0120 to 1.0600 (480
pips).
- 05:17:00- FXCM's
quoting circuit breakers are removed and prices begin updating
again. Execution is still halted.
- 05:23:00 - FXCM's
trading circuit breakers are removed and execution of trades begins
again. Liquidity levels are as little as 5% of normal levels, and
only 3 or 4 liquidity providers are quoting consistently.
January 15 Was A Market Flash Crash - The
Institutional FX Market Failed And Did Not
Function:
As the above timeline demonstrates, the SNB's surprise announcement
caused a complete institutional FX market breakdown impacting
liquidity, volatility, spreads, and execution. Unlike other recent
major market events where FXCM's liquidity providers continued
quoting and providing consistent levels of liquidity, January 15
saw an extreme lack of liquidity and pricing.
- No Liquidity - There was almost no available
liquidity for approximately 40 minutes
- Dramatically Low Pricing - External ECN prices
went as low as 0.2000 and 0.5000
- Extreme Spreads - The average spreads of EUR/CHF
were more than 2000-3000 pips
- Extreme Range - The average range of EUR/CHF was
6000 pips.
The January 15 flash crash saw the EUR/CHF drop 40% in seconds whereas the 2010 flash crash in the
equities market saw about 9% drop in
the Dow Jones Industrial Average over the
course of a few minutes.
An image accompanying this release is available at
http://media.globenewswire.com/cache/33730/file/32504.pdf
Prices were extremely volatile and liquidity
deteriorated rapidly. Accordingly, quality of execution
deteriorated rapidly across all FXCM's liquidity
providers.
In the first 5 seconds after the EUR/CHF price moved below 1.2000,
FXCM's providers accepted orders and executed more than their
average quoted volume.
- 04:30:47 to
04:30:51
- Average Sell Amount Executed Per Second: 25.3
Million
- Average Bid Size Available Per Second: 22.3
Million
- % of Average Bid Size Executed: 113.5%
In the next 5 seconds, FXCM's providers rejected heavily, filling
less than 1/5th of the
average quoted volume.
- 04:30:52 to
04:30:56
- Average Sell Amount Executed Per Second: 2.66
Million
- Average Bid Size Available: 14.72 Million
- % of Average Bid Size Executed: 18.0%
FXCM systems allowed most clients to exit trades
between 1.02 & 1.04 and avoid the extreme lows of the
extraordinary market event. In normal market conditions,
there are more than a dozen active liquidity providers and quotes
good for sixty million on each side (both Bid and Ask) that refresh
every few seconds. FXCM saw executable liquidity drop to nearly
zero two minutes into the event. EUR/CHF was dropping from
1.20 and FXCM had little ability to execute client stop orders or
margin calls because there were almost zero effectively executable
quotes. FXCM executed approximately 200 million in total volume
before 4:30:56 in the 1.17 to 1.20 range. At 4:30:57, FXCM's
circuit breakers engaged and would not execute the remaining
approximately 1 Billion until the market began to function with
stable pricing. FXCM's system circuit breakers deploy to halt new
quotes and trading, and are designed to protect clients against
erroneous quotes and off-market trades.
The majority of FXCM liquidity providers had stopped quoting prices
during this time. Had FXCM's circuit breaks not engaged, the
weighted average price of the same orders would have been much
lower than the execution price of 1.05, at 0.9760. With no
liquidity for approximately 45 minutes, the market began to
stabilize around 5:10 am at a price of 1.0400.
Observations:
The market data from January 15 shows that while it appears many of
the FX ECN's have few or even no circuit breakers to halt trade
execution in the case of extreme pricing, FXCM's circuit breakers
aided its clients in this extreme market movement. The market could
have been functional if circuit breakers had existed at every
level.
The market data also shows that the losses on January 15 were not
the result of FXCM technology or FXCM margin requirements, but
rather due to the extreme market dysfunction resulting from the
SNB's irresponsible and unforeseen announcement to completely
remove the 1.2000 CHF floor. FXCM has long run a No Dealing
Desk or Agency Execution model on its FX business. For FXCM's
execution system to function efficiently and effectively, the
Institutional Market must provide prices and executable
liquidity. As FXCM is given prices and liquidity from
liquidity providers, the firm executes every client's FX trade back
to back with the liquidity providers. However, the SNB's actions on
January 15 caused the firm's liquidity providers to cease providing
pricing during the event, which ultimately resulted in some clients
having negative balances with FXCM.
For the full recording and presentation
please click here.
About FXCM Inc.
FXCM Inc. (NYSE:FXCM) is a leading provider of online foreign
exchange (forex) trading, CFD trading, spread betting and related
services. Our mission is to provide global traders with access to
the world's largest and most liquid market by offering innovative
trading tools, hiring excellent trading educators, meeting strict
financial standards and striving for the best online trading
experience in the market.
Clients have the advantage of mobile trading, one-click order
execution and trading from real-time charts. In addition, FXCM
offers educational courses on forex trading and provides free news
and market research through DailyFX.com. Trading foreign exchange
and CFDs on margin carries a high level of risk, which may result
in losses that could exceed your deposits, therefore may not be
suitable for all investors. Read full disclaimer.
Visit www.fxcm.com and follow us on Twitter @FXCM, Facebook FXCM,
Google+ FXCM or YouTube FXCM.
CONTACT: FXCM Inc.
Jaclyn Klein, 646-432-2463
Vice-President, Corporate Communications
jklein@fxcm.com
investorrelations@fxcm.com
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