Ed Pla Managing Director, UBS Investment Bank
Ed Pla Managing Director, UBS Investment Bank

Underpricing Liquidity – ePlatforms increasing systemic risk

Edward Pla talks about the debate surrounding FX Liquidity and why it’s heating up.

First Published: e-Forex Magazine 18 / Leader / April, 2005

The debate surrounding the general topic of FX liquidity is heating up. This is understandably a focus among regulators who want to better understand and monitor "systemic risk". They are openly curious about how recent FX market trends (increased propensity of participants to trade electronically, increased number of electronic channels for sourcing liquidity, concentration of market share among the top 10-15 global liquidity providers, the burgeoning number of electronic marketplaces or "ECNs" ... to name a few) might affect liquidity during times of market stress like we saw in the Autumn of 1998 or during the ERM crisis of the early 1990's.Daily FX trading volumes are at well-documented all time highs driven by a host of factors including:• a trend increase in cross border investing • a trend increase in international trade • tighter bid/ask spreads • greater price transparency • significant numbers of new entrants including hedgers and retail/institutional...continued

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