by Anyone wondering why gaps and volatility in FX, and especially cable is reaching on the absured today, with 100 pips swings in minutes the norm, the reason is that there is virtually no liquidity, and a main catalyst for this is that as HFTs conduct their usual stop hunts to stop out proximal limit orders, they simply find no such stops. They can blame banks such as Barclays for this development: as of 600 GMT this morning, Barclays has stopped accepting new stop loss orders as banks, concerned about today’s vote outcome, seek to cap their exposure to the results of Britain’s referendum on EU membership. As the Barclays letter shown below states, it would not execute such trades, where the bank seeks to close existing positions for clients at a pre-established price, through its machine-trading algorithms. According to Reuters, Barclays’ refusal of all new stop-loss orders, whether over the phone or through messaging or dealing systems, is extremely rare and a measure of the big banks’ concerns that a vote to leave the European Union would spark similar chaos to that after last year’s blowout on the Swiss franc.
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Anyone wondering why gaps and volatility in FX, and especially cable is reaching on the absured today, with 100 pips swings in minutes the norm, the reason is that there is virtually no liquidity, and a main catalyst for this is that as HFTs conduct their usual stop hunts to stop out proximal limit orders, they simply find no such stops. They can blame banks such as Barclays for this development: as of 600 GMT this morning, Barclays has stopped accepting new stop loss orders as banks, concerned about today’s vote outcome, seek to cap their exposure to the results of Britain’s referendum on EU membership.
As the Barclays letter shown below states, it would not execute such trades, where the bank seeks to close existing positions for clients at a pre-established price, through its machine-trading algorithms. According to Reuters, Barclays’ refusal of all new stop-loss orders, whether over the phone or through messaging or dealing systems, is extremely rare and a measure of the big banks’ concerns that a vote to leave the European Union would spark similar chaos to that after last year’s blowout on the Swiss franc.
Bank of America Merrill Lynch and UBS both issued communications to clients this week, seen by Reuters, which warn of potential gaps in the services they normally provide to major institutional clients.
Arguments over whether banks could have achieved better prices for stop loss orders were at the heart of legal arguments between financial firms over hundreds of millions of dollars in losses caused by the franc’s surge in January of last year.
“Barclays have advised on Monday that they weren’t accepting stop loss orders via Barx algo execution,” a senior trader with one bank in London told Reuters. “Further they are not accepting any stop loss orders from 7am (today).”
The trading restriction will last until 10pm London time on June 24.
Full Barclays announcement:
Order handling for BARX Corporate
Dear Client,
We wanted to highlight that a price dislocation or illiquid conditions (“Disrupted Market Conditions”) could affect the FX markets at any time. There, in particular, is a risk of FX markets trading in wide ranges during the period that includes the UK’s EU Referendum, held on June 23rd 2016, and its aftermath (the “EU Referendum Period”).
Both Barclays Electronic Trading Desk and Barclays Voice Spot Trading Desk will endeavour to operate as close to normal levels of service as the Disrupted Market Conditions allow. However, taking into account the potential Disrupted Market Conditions during the EU Referendum Period, Barclays has decided to impose certain restrictions on its electronic and voice FX Stop Loss order offering during this period and would like to highlight certain matters with respect to Disrupted Market Conditions.
FX Stop Loss Orders
- Up until June 23rd 7.00am London time Barclays will continue to accept FX Stop Loss orders in BARX Corporate on a case by case basis at Barclays’ discretion, taking into account market conditions among other factors.
- From June 23rd 7.00am London time Barclays will not accept any new FX Stop Loss Orders until June 24th 10pm London time.
Considerations for FX Stop Loss Orders during the EU Referendum Period
- Barclays endeavours to execute all FX Stop Loss Orders in a reasonable manner so as to minimize market impact.
- Bid-offer spreads are unlikely to be observable in Disrupted Market Conditions. Barclays will exercise its reasonable discretion in deciding when and how to execute FX Stop Loss Orders, including whether to execute all or part of the order, in accordance with our governance framework and taking into account Disrupted Market Conditions.
- Barclays will not provide any guarantees with respect to slippage on FX Stop Loss Orders.
- Barclays endeavours to provide timely communication to clients on their FX Stop Loss Orders fills, on a best efforts basis, to the extent that the Disrupted Market Conditions allow.
We recommend that our clients carefully consider any outstanding FX Stop Loss Orders that they have in place, or may wish to put in place, over the EU Referendum Period.
During the EU Referendum Period Barclays will endeavour to offer a Call Level service on a best efforts basis, taking into account market conditions and other factors. While we will aim to communicate to clients in a timely manner when their Call Level has been reached, Disrupted Market Conditions may increase the likelihood that the market has moved significantly away from the Call Level by the time we contact the client.
You may wish to consider whether a Call Level is a suitable alternative to a FX Stop Loss Order. In order to ensure that Call Levels are directed appropriately, please ensure that your contact details are configured within BARX Corporate.
Potential Impact on BARX Corporate
We recommend that our clients carefully consider any outstanding orders that they have or may wish to put in place on BARX Corporate, over the EU Referendum Period. As noted above, Barclays will not be offering the ability to leave Stop Loss orders from June 23rd through June 24th.
In the event of Disrupted Market Conditions during the EU Referendum Period:
- BARX Corporate pricing may only be available at wider bid-offer spreads.
- Low levels of liquidity could cause delays in order execution.
- BARX Corporate may also cease streaming prices in some or all currency pairs.
Subject to the restrictions set out above, you may choose to continue to place FX Stop Loss orders in the usual way during the EU Referendum Period, however, please be mindful of the potential consequences of doing so in the event of Disrupted Market Conditions.
Note, as part of regular maintenance and value date roll, the BARX Corporate system will be unavailable at 10pm London time, typically resuming before 10.05pm London time in normal market conditions.
Should you have any questions or like to discuss further, please contact your Barclays’ sales representative.