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Judgement day: algorithmic trading around the Swiss Franc cap removal

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posted on 2023-06-09, 13:03 authored by Francis Breedon, Louisa ChenLouisa Chen, Angelo Ranaldo, Nicholas Vause
Staff working paper no. 711: A key issue raised by the rapid growth of computerised algorithmic trading is how it responds in extreme situations. Using data on foreign exchange orders and transactions that includes identification of algorithmic trading, we find that this type of trading contributed to the deterioration of market quality following the removal of the cap on the Swiss franc on 15 January 2015, which was an event that came as a complete surprise to market participants. In particular, we find that algorithmic traders withdrew liquidity and generated uninformative volatility in Swiss franc currency pairs, while human traders did the opposite. However, we find no evidence that algorithmic trading propagated these adverse effects on market quality to other currency pairs.

History

Publication status

  • Published

Publisher

Bank of England

Pages

30.0

Place of publication

London

Department affiliated with

  • Accounting and Finance Publications

Institution

Bank of England

Full text available

  • No

Legacy Posted Date

2018-04-25

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