IFin Seminar, Joel Hasbrouck, NYU (Stern), "FX Market Metrics: New Findings Based on CLS Bank Settlement Data"
Institute of Finance
Date: 15 June 2018
Seminar Title: "FX Market Metrics: New Findings Based on CLS Bank Settlement Data Discounting, Diversity, and Investment
Joel Hasbrouck, NYU (Stern)
12:30 - 13:30
Room A34 (red building)
Using a new and unique data set of foreign currency settlement instructions provided by CLS Bank, we investigate activity and liquidity in the foreign exchange market. The settlement data are observed at high frequency and span a wide range of participants and trading mechanisms. In the major currency pairs, CLS settlement volume shares are similar to those reported in the BIS triennial surveys. They are also similar to shares computed from EBS trade data reported by Mancini, Ranaldo and Wrampelmeyer (2013) (MRW), but only for currency pairs for which EBS is considered the dominant electronic platform.
We estimate Amihud (2002) illiquidity ratios from CLS submissions and Olsen price records, and compare these ratios to price impact estimates based on high frequency EBS data and reported by MRW. Correlation between illiquidity and EBS-based price impact is strong for EBS-dominant currency pairs, but not for Reuters-dominant pairs. The common factor in the illiquidity ratios across all major pairs is highly correlated, however, with a factor constructed solely from EBS-dominant pairs, suggesting that EBS liquidity factors may be good proxies for factors based on broader samples.