Regulator focus on Algos will lead to greatly reduced liquidity
Interbank e-commerce dealers have been reporting heavily reduced liquidity over the last 7-10 days and it’s not just the looming Christmas holidays which is responsible for this. The recent scrutiny into algorithms on trading platforms at big interbank players such as BarCap and Deutsche is not a one-off and dealers across the globe are bracing themselves for a regulatory onslaught.
These investigations are only going to make trading-platform and dark-pool providers more cautious and gun-shy. Many of the practices which they have implemented, which are the sole reason for many of them to be in business, are now being called seriously into question.
One definite effect of this will be heavily reduced liquidity in the spot FX market so best we bit-players get ready to adjust our positioning accordingly.