The Swiss franc briefly plunged after an employee at currency brokerage EBS mistakenly entered a test bid as the real thing. The move touched off frantic trading as market participants mistook the action for an intervention by the Swiss National Bank.
The erroneous bid on Wednesday sharply reduced the franc's value against the euro. EBS said it could erase its bid, but not the more than 400 trades that followed in the roughly six minutes before the euro-franc exchange rate returned to its level before the mistake. Those subsequent trades remain on the books, along with any profits or losses that resulted.
"EBS can confirm that…an incorrect price in [the euro-Swiss franc] inadvertently entered the EBS live market due to a mapping error between the test- and production-trading environments," a spokesman for the company said, adding "a full investigation is being undertaken by EBS to understand the circumstances surrounding this incident."
EBS, which is owned by ICAP PLC, said the error occurred between 9:33 a.m. and 9:40 a.m. EST, when EBS recorded a bid for the franc at 1.2150 francs to the euro. That was well above the previous trade at 1.2094 francs, and a nine-day low for the Swiss currency. Traders weren't able to complete a deal at the mistaken bid price.
The appearance of a sudden drop in the franc played into a belief among foreign-exchange traders that Switzerland's central bank was planning to step into the market to weaken its currency. Given the impact that such intervention would have, traders felt compelled to buy euros before their value jumped.
The SNB in September had set a 1.20 franc floor on the euro-franc exchange rate, a level the franc has come close to touching recently. The central bank has yet to act, however."As it edges down toward 1.20 franc, people are looking for the SNB to be there," said Win Thin, global head of emerging-markets strategy at Brown Brothers Harriman in New York. "People are nervous." Mr. Thin said the market quickly realized the mistake, which minimized the fallout.
The franc hit its low for the day at 1.2136 franc shortly after the mistaken bid, but was back at the level recorded before the error by 9:44 a.m., by which time 465 trades had occurred, according to EBS via CQG. EBS reports the number of trades, but not the amount of currency transacted.
The franc traded at 1.2088 to the euro late Wednesday in New York from 1.2093 late Tuesday.
The trades made after the erroneous bid are unlikely to be expunged, as they occurred in the unregulated over-the-counter market. The deals would have to be wiped out on a case-by-case basis with the agreement of both parties. In a regulated market, such as the New York Mercantile Exchange, a central clearinghouse can unilaterally cancel trades based on errors. EBS and other dealing platforms have indicated their intent to comply with new regulations that require standardized clearing for certain derivatives, including currency swaps. However, those rules haven't been finalized.
The Federal Reserve Bank of New York, Securities and Exchange Commission and Commodity Futures Trading Commission declined to comment on the EBS error. However, people close to the situation said bank regulators have been informed of the situation and are studying it.
Traders said the plausibility of the mistaken EBS bid coming from the Swiss central bank magnified the damage. By selling francs and buying euros, the SNB could raise its floor to 1.25 francs or higher, helping to boost the Swiss economy by making exports more competitive.
Earlier this week, there was market chatter of official bids at about 1.2100 franc, so a bid at 1.2150 franc easily could have been mistaken for the SNB, a New York trader said.
By contrast, an erroneous trade in the euro-U.K. pound exchange rate in November pegged the euro at five times its record against the pound. That trade provoked no follow-up activity in the market, and EBS removed the deal.
Late Wednesday in New York, the euro was at $1.2864 compared with $1.2736 late Tuesday. The dollar was unchanged at ¥76.83, while the euro was at ¥98.83 from ¥97.85. The pound traded at $1.5438 from $1.5336, while the dollar bought 0.9397 franc from 0.9495 franc.
read more: Olympus Wealth Management
No comments:
Post a Comment