July 21, 2021 at 08:25 pm
Julito G. Rada
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Wednesday a “pricing feed error” might have caused the so-called “currency flash crash” on July 20, a holiday in the country, when the peso abruptly appreciated against the US dollar to 42.82 from 50.34 on Monday.
Diokno said in a statement the source feed was not Bloomberg nor the Bankers Association of the Philippines. He said the official sources are Bloomberg and BAP only.
“The abrupt peso appreciation yesterday mentioned [in an online article] was captured by the currency quotes from Google as well as certain social media platform,” Diokno said.
“We believe that these applications that showed the drastic drop in the USD/PHP rate had an error in its source feed. Yesterday, July 20, was a Philippine holiday and domestic markets were shut,” Diokno said.
Muslim Filipinos celebrated the Eid al-Adha or Feast of the Sacrifice on July 20.
“This means that there was no live official data source for the spot market. The rule that we have is that on holidays, the prevailing official rate will be the rate of the previous business day. In addition, we had observed various FX platforms such as Bloomberg and Reuters [which is what the BSP uses for market data sources] and none showed this drastic move,” Diokno said.
Diokno said he highly doubted there were any material transactions dealt at those rates as these would definitely be “off market” and be subjected to internal reviews of these platforms.
“For the reasons above we believe that the particular applications for USD/PHP pricing was caused by a pricing feed error, exacerbated by the Philippine holiday,” he said.
Diokno said that “someone would be willing to trade at these off market prices using these apps can warrant further investigation.”
A flash crash is defined as a sudden episode of extreme exchange rate volatility affecting one or more currency pairs. Although the extreme exchange rate movements are usually short-lived, the turbulence arising from them can last for some time. This can make FX risk management more complex for international businesses.
Rep. Joey Salceda, House Ways and Means chairman, said sudden crashes could be a problem for Philippine trade and the credibility of the peso. He said such spikes may be bad for exporters who were badly affected by the lingering impact of the COVID-19 pandemic.