* Graphic on flash crash tmsnrt.rs/2hwV9Hv
By Patrick Graham
LONDON Jan 13 There is little if any data to
support suggestions that traders may have deliberately spurred
October's flash crash in sterling, a Bank for International
Settlements report said on Friday, pointing instead to a range
of structural factors.
The report from the BIS Markets Committee steered clear of
discussing the conduct of individual banks or traders in the 9
percent fall and recovery of the pound over a few minutes around
the start of the Asian trading day on Oct. 7.
The Financial Times reported last month that regulators had
been looking at the activity of a Japan-based trader at U.S.
bank Citi, the world's single biggest currency trading
institution, during the currency's fall.
Citi has said its trading operations functioned
appropriately in a thin and illiquid market.
"Based on the available evidence, this event (the flash
crash) appears to have been the product of a confluence of
factors," the committee, made up of representatives of the
world's major central banks, said in the report, stressing that
it had not considered "specific issues around market conduct"
during the event.
It pointed chiefly to the generally low liquidity of the
market at the time of day when the crash took place, along with
the execution of stop-loss and options hedging orders triggered
by the sharp changes in the exchange rate.
"Other factors such as 'fat finger' errors and potential
market abuse cannot be ruled out given the incomplete data set,
but there are little, if any, hard data to substantiate them,"
the report said.
Group committee chairman, Reserve Bank of Australia Deputy
Governor Guy Debelle, said the report's conclusions had been
factored in to ongoing work on a global code of conduct for the
giant $5 trillion a day foreign exchange market.
"There are direct lessons ... which have been taken on
board," Debelle said.
"These include ... participants' obligation to consider the
disruptive consequences of their trading activity, governance
around algorithmic execution of trades, and how market
participants might best determine the low (or high) point of
pricing in a flash event."
The sudden fall in the pound was the latest in a series of
such events on major financial market in the past three years,
generally assumed to be linked to a drop in day-to-day risk
taken by banks and a move towards more computer-driven trading.
Sources familiar with discussions at BIS meetings told
Reuters last month that there was growing concern among
regulators about the need to address such crashes but that
central banks would be reluctant to go as far as outright
The report also found that there were no material losses
incurred by important financial institutions and that spillovers
to other markets had been very limited, suggesting banks and
other players were getting better at dealing with such crashes.
"It is vital, however, that we learn the lessons of this
flash event and similar episodes in other financial markets, as
orderly market functioning underpins market confidence," Bank of
England Governor Mark Carney said.
"It is also important that firms have adequate governance,
systems and controls and give due consideration to the potential
impact of their activity on market functioning."
(Editing by Jeremy Gaunt)