We examine the 21-minute flash crash in the spot rate for Pound Sterling (GBP/USD) in October 2016. During this period, the sterling price fell 9%. Proprietary data reported to the Financial Conduct Authority show that the round-trip costs of dealers are 60 times higher during the flash crash compared to normal times given liquidity constraints. Further, dealers reduce their trading volume to 1% of the level during normal times. This may be attributable to the collapse of the inter-dealer market during the crash, where dealers could only hedge 31% of their clients’ trades with each other.
|Number of pages||21|
|Journal||European Journal of Finance|
|Early online date||8 Apr 2020|
|Publication status||Published - 12 Oct 2020|
- Flash crash
- OTC market
- trading behaviour