| By: |
Joseph, Andreas (Bank of England);
Vasios, Michalis (Norges Bank Investment Management);
Maizels, Olga (Bank of England);
Shreyas, Ujwal (Black Rock Investment Management & Financial Services);
Tanner, John (Bank of England (retired)) |
| Abstract: |
Using unique data at transaction and counterparty identity level, we study the
microstructure of the Swiss franc FX over‑the‑counter (OTC) derivatives market
during a time of stress that was triggered by the decision of the Swiss
National Bank (SNB) to remove the Swiss franc‑euro exchange rate floor on 15
January 2015. Building on new methodology based on the topology of the trading
network we segment the market into a multi‑layered structure. We observe that
the SNB announcement had a clear and differentiate impact on the market from
this perspective. Clients in a more central position in the network topology
were able to enter the market sooner than peripheral counterparties, while the
inter‑dealer core of the market was largely inactive. Using outstanding
positions to proxy demand we observe that clients in greater need of trading
were offered unfavourable prices if they found liquidity. Overall, our results
point to a shortage of liquidity in the phase of market adjustment and
highlight the heterogeneous reactions of different market segments during that
time. |
| Keywords: |
OTC derivatives markets; FX markets; market microstructure; networks; financial stability; market regulation |
| JEL: |
C80 G14 G23 G24 |
| Date: |
2019–10–11 |
| URL: |
http://d.repec.org/n?u=RePEc:boe:boeewp:0832&r=all |