Darren Jer, COO of MarketFactory, compares the differences in FX and Equity market microstructure and illustrates key lessons learned from uneven regulation using three case studies:
1. 1987 Black Monday
2. 1998 Hong Kong Currency Board Attack
3. 2010 Flash Crash
What can be learned from Equities? Too Connected to Fail.
• Remember Too BIG to Fail? Be wary of Too LINKED to fail: 1987, 1998, 2010
• In a financial system where the links between markets are either explicit due to regulation, or implicit due to trading participants, we are all in the same boat
• Regulation isolated to one instrument is rarely ever isolated; FX cash will be affected by Dodd-Frank regulation in swaps and options
• Regulation in Equities is a great lab for microstructure changes
FX Market Practitioners are urged to:
1. WATCH and engage the unfolding regulatory landscape
2. CONNECT to as many venues and liquidity providers as possible
3. TAKE COMFORT in illiquidity and no true market makers
4. BE CONFIDENT of your knowledge of distance latency
5. INVEST in technology
Source: Forex Networ
