During a six-minute window, banks essentially pulled out of the market, while HFTs exacerbated the volatility.
“The high frequency traders are an important part of the ecosystem, and we are of course broadly speaking in favor of anything that improves the quality of the trading ecosystem,” Spencer said Wednesday in a conference call. “I’m interested in what the Federal Reserve ideas are in how they might improve the ecosystem. We will support all sensible suggestions.”
While Monday’s report concluded that there was no single cause of the turbulence on Oct. 15, it did raise concerns that changes in market structure could lead to “rare but severe bouts of volatility.” Those shifts include a big increase in electronic trading of Treasuries and banks scaling back their traditional role as market makers.
“It’s not just the HFT dimension that’s relevant here,” Spencer said. “As a result of Volcker and other regulators’ changes, the risk appetite in the banks is much less today than it was 10 years ago, eight years ago.”
ICAP Plc Chief Executive Officer Michael Spencer said there will probably be more unusual moves in Treasury trading as markets are increasingly electronic, complex and dominated by computerized firms.
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