FX Market Metrics: New Findings Based on CLS Bank Settlement Data

57 Pages Posted: 8 Feb 2017 Last revised: 10 Mar 2018

See all articles by Joel Hasbrouck

Joel Hasbrouck

New York University (NYU) - Department of Finance

Richard M. Levich

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: February 1, 2018

Abstract

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.

Keywords: Foreign exchange, CLS Bank, market microstructure, liquidity

JEL Classification: F31, G12, G15, G23

Suggested Citation

Hasbrouck, Joel and Levich, Richard M., FX Market Metrics: New Findings Based on CLS Bank Settlement Data (February 1, 2018). Available at SSRN: https://ssrn.com/abstract=2912976 or http://dx.doi.org/10.2139/ssrn.2912976

Joel Hasbrouck (Contact Author)

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
MEC Suite 9-190, Mail Code 0268
New York, NY 10012-1126
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212-998-0310 (Phone)
212-995-4233 (Fax)

Richard M. Levich

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0422 (Phone)
212-995-4256 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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