Foreign exchange liquidity in the Americas

Report submitted by a study group established by the BIS CCA Consultative Group of Directors of Operations (CGDO) and chaired by Susan McLaughlin, Federal Reserve Bank of New York

This report discusses FX liquidity metrics and their drivers, reaching four conclusions. First, changes in FX markets have reduced the usefulness of some conventional FX liquidity metrics; several metrics need to be assessed together to give a better picture of market liquidity. Second, some metrics suggest that liquidity in FX markets has declined during some recent episodes of market stress. Third, technology appears to have changed liquidity dynamics - enhancing liquidity in normal conditions and offsetting the impact of market fragmentation, but also adding to FX volatility in stressed market conditions. Fourth, the impact of post-crisis regulatory change on FX market liquidity remains unclear and requires further study.

JEL classification: F31, G15