ASIC today released an update on their investigations into AU$ trading movements around the time of recent RBA target rate announcements. Whilst their investigations are ongoing, ASIC says the movements are related to liquidity positions and computer based trading, and do not indicate cases of market misconduct.
ASIC today provided an update on its investigation into the movements in the Australian dollar shortly before the Reserve Bank’s monetary policy decisions for February, March and April 2015.
The enquiry is investigating trading in the dollar in the minute prior to the RBA’s interest rate decision statement at 2.30pm.
ASIC has made extensive enquiries into the management of the information flow regarding the RBA’s interest rate decision prior to the announcement of this decision.
ASIC’s current focus is on reviewing the trading behaviour of a number of foreign exchange markets and platforms including interest rate futures markets and CFD platforms providing foreign exchange markets. Notices to produce trading information have been sent to many financial institutions and platform providers to understand the basis of the trading on these markets at the point in time of interest.
ASIC’s enquiries are ongoing as to the cause of the swings in the currency markets. Preliminary findings reveal moves in the Australian Dollar ahead of the announcement to be as a result of normal market operations in an environment of lower liquidity immediately ahead of the RBA announcement. The reduction in liquidity providers is a usual occurrence prior to announcement in all markets. Much of the trading reviewed to date was linked to position unwinds by automated trading accounts linked to risk management logic and not misconduct.
In particular, ASIC has observed liquidity being withdrawn from the market at the same moment as participants already positioned were considering their risk exposure too large ahead of the announcement and reducing their position. This lack of liquidity distorted the execution logic in the algorithms of some participant systems. This, along with a fall in trading volumes leading up to the release of key market data, means trades may have had a more pronounced impact on the price than they otherwise would.
