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.
Back in the Day
Looking in from the outside on the events of Black Thursday in the Swiss franc and its effect on the FX market, I was reminded of something….
As a young assistant on the trading floor back in the mid 80s, my main duties on the FX desk were to write tickets, keep positions, call out for inter-bank prices and go get lunch. For those of you much younger than I, which is pretty much all of you, a ticket was written when a deal was done, and the positions were kept by position clerks (me). I even had to use a pencil. For you aforementioned young people a pencil is a writing instrument. Google it.
It wasn’t long before I was promoted from assistant/delivery boy and was given a currency to trade. Our chief dealer, my direct boss, had a plethora of contacts within the industry; One of his contacts was a member of the central bank of the country whose currency I was trading. Yes, I’m being vague. The chief dealer, helping his newly appointed and scared-to-death trader, advised we begin to build long positions because as he said, “When they are in the market they are in the market like a rock…until, well, they are not.” …Huh?
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It was a time when the central banks would occasionally enter into the markets through the interbank market or through voice brokers (yes, real people) in order to smooth markets, do customer deals or just to show their face in the market ( hey guys we’re still watching our currencies’ movements). This particular interest on the part of the central bank was rather large and well-supposed to be there like a rock.
So the events of this past January in the Swiss markets made me think of my experience back in the 80s. The Swiss banks’ level was there, until, well, it wasn’t. The difference being the automatic hitting of bids and automatic next-level executions that work so well in markets that are less than a pip wide now become, well, absurd. With no common sense or human input things can get out of hand. It’s a bit of a shame when people get stopped at unreasonable rates – simply because an electronic program automatically sold at the very first price it saw no matter how far off the market.
Back to the 80s we go. We get the phone call from the aforementioned central bank and the chief dealer says to me they are taking out their bid. They’ve decided to wait for the possibility of better levels. They were there like a rock, now they’re not. Just like that. These things happen in markets.
The market collapsed, and while caught very long and having stops for customers, the chief dealer and other senior dealers crossed their positions, checked all standing orders, spoke to others in the market (that was actually allowed then, but that’s a whole other subject), they managed the banks risk, handled customer orders, used common sense and executed stop losses at rates that were reasonable. It was a tribute to the human side of the business…leadership, team attitude, fostering of market relationships, experience and good old-fashion managing of risk.
As for me? I threw up.