Probe ‘flash crash’ of dollar to peso on holiday—solon

A congressional leader on Wednesday called on the Bangko Sentral ng Pilipinas to look into a possible “flash crash” that took place in the afternoon of July 20, when some foreign exchange platforms showed a sudden dip in the US dollar to Philippine peso rates from P50.54 to as low as P42.82.

“Foreign exchange trading platforms have always been sources of volatility, but when these sudden crashes take place without explanation, and different market makers yield wildly different rates, that could be a problem for Philippine trade and the credibility of the PHP as a currency,” Rep. Joey Salceda of Albay, the committee chairman, said.

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 foreign exchange risk management more complex for international businesses.

In a statement, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said 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 were Bloomberg and BAP only (See related story on B1 – Editors).

“Sudden spikes like this could be very bad for our exporters, many of whom are still reeling from factory closures and work suspensions due to COVID-19,” Salceda added.

“It was probably human error, but I’m not discounting the possibility that somebody bought an obscene amount of pesos with US currency. In any case, this is something that merits the attention of the Bangko Sentral ng Pilipinas,” the Albay solon said.

“We want to watch out for events like this because we are a very foreign currency-dependent country, given our large OFW community. You don’t want wild gyrations like this, especially when based on faulty information, human error, or technical issues,” he said.

“The abrupt peso appreciation yesterday mentioned [in an online article] was captured by the currency quotes from Google as well as certain social media platforms,” 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.

Salceda noted that “traditional sources of foreign exchange data, such as the Tullett Prebon Electronic and Voice Interdealer Broker, cited by international publications such as the Wall Street Journal, still showed the USDPHP rate trading at between P50.47 at the day’s low and P50.99 at the day’s high.”

“Reuters’s Currency Rates, which the Bangko Sentral uses, also showed no such real time spike in the value of the peso,” Salceda said.

“Even Bloomberg showed no signs of the PHP’s spike, but there are reports that some retail traders were indeed able to buy and sell dollars at the rates as low as P42.83, which would be the all-year low. Of course, the exchange rate is floating, so you expect some variations in price, but not of these bands,” Salceda added.

“Some trades at the wildly varied prices did pursue, however. So, some retail traders lost money on probably faulty information,” he said.

Salceda, principal author of the proposed Consumer Financial Protection Act, said that “an institution that looks after consumers of financial products, especially for cases such as this, is becoming more and more urgently needed.”

“A lot of Filipinos shifted to digital financial products, many of which are not yet regulated or sufficiently overseen by the BSP. You can’t blame the people for doing so in desperate times, but there are real systemic risks to not having a full-time unit that acts as an arbiter of what consumers of financial products should believe,” he said.

“You now have platforms with gamified trading of cryptocurrencies and other tokens, to retail trading of foreign currencies through what are called contracts for differences of CFDs. These platforms even allow leverage, which of course could ruin the uninformed,” Salceda warned.

In his proposed bill, the solon pushed for the institutionalization of the Financial Consumer Protection Department (FCPD) as a unit in the BSP.

In addition to existing powers and functions of the FCPD over BSP-supervised financial institutions (BSFI), the FCPD shall have oversight and enforcement powers over nonbank financial companies that it shall supervise.

Salceda also wants the unit to supervise trading platforms available to Filipinos.

“In the markets, facts are very important. This is an office that could establish the facts for Filipinos so that they could make informed choices when they participate in the capital and money markets,” he added.

Topics: Bangko Sentral ng Pilipinas , foreign exchange , Benjamin Diokno
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