ABOUT THE AUTHOR: Stephen A. Simonis Sr. is a foreign exchange risk management executive with over 30 years experience in the FX market. Mr. Simonis last served as managing director of the FX Global Markets at BNY Mellon, where he demonstrated expertise in an environment characterized by high volumes, rapid technological and regulatory evolution, sophisticated competitors and demanding clients. In his tenure at BNY Mellon, he initialized and developed the trading and risk management links amongst Tokyo, Hong Kong, Brussels, London and New York trading floors; successfully managed market, credit and client risk through a variety of geopolitical and financial crises; and held a key role in the development and implementation of online trading systems.
The move in the AUD before refraining from cutting interest rates on March 3rd, 2015 has sparked some people to consider foul play. Some are insinuating the use of insider information, an early release and other variants of unjust behavior. Some context for those unaligned with what I’m referring to: on March 3, 2015, just before the RBA was about to announce its interest rate decisions, the AUD/USD went from 77.74 to 78.22. …that’s it.
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Have we officially gotten to a place where a 50 point move, at a particularly critical time I might add, becomes suspect of wrongdoing? Let’s pump the brakes on the regulatory freight train before we start launching probes, investigations, witch hunts, and whatever other ironic criminal behavior these self-governing watchdogs bestow upon their prey.
Is it possible that someone decided to cut a large short AUD position right before the release in a particularly thin market at the time? Yes. Could a company decide to speculate on the release with no particular inside knowledge? Obviously. Is it possible someone executed the dreaded ‘fat finger’ trade? Bid too high and pushed the market higher in a illiquid market? Of course.
I sympathize with anyone who was stopped out by an auto trading system at a particular vulnerable time–but it is the risks of foreign exchange and not necessarily cause for suspicion. If you were long AUD at that time you are less inclined to start looking for a scapegoat and “reasons” why it moved 50 pips in your favor. (We haven’t touched on the fact that a 50 point is not exactly an earth shattering move – ask someone involved in the Swiss franc or any other moment of decent volatility in the market). You can read more about it in my last article. However, when traders are short and this move happens, we see tents being pitched at Zuccotti Park launching Occupy Wall Street part II.
Sometimes you are short and it goes higher –that’s why they call it risk.