LONDON (Reuters) - Broker Icap IAP.L is working with clients Citigroup (C.N), Deutsche Bank (DBKGn.DE), JP Morgan (JPM.N) and Morgan Stanley (MS.N) to counter risks arising from the growth of high-frequency trading in the foreign exchange market.
The banks, which are among the largest FX trading firms, have signed up to a new service from Icap-owned Traiana that enables them to watch their clients’ trading across various FX platforms and cut off credit lines in real time if necessary.
“The increase in high-frequency trading and algorithmic FX trading has made the provision of adequate control and real-time risk management of critical importance,” said Michael Irwin, co-head of FX prime brokerage at Morgan Stanley.
The new version of Traiana’s Harmony CreditLink, which was developed in partnership with the banks, is available to all Harmony clients, made up of 500 of the world’s largest trading firms, Traiana said on Monday.
High-frequency and algorithmic trading, which use state-of-the-art computers to generate huge numbers of trades that are executed in split seconds, have grown over recent years in more standardised trading markets such as FX and equities.
The trading methods were partly blamed by regulators in the United States for the ‘flash crash’ in May last year when the Dow Jones Industrial Average dropped 600 points in a matter of minutes, causing panic in the market, before bouncing back.
Reporting by Luke Jeffs and Will Waterman