While a single bank may offer a less competitive price than an ECN (electronic communication network) for any given pair at any given time, taken as a group banks overwhelmingly and consistently offer a better price for liquidity, Pragma says.
Pragma reported having found only three instances of multiple banks ceasing quoting during periods of high volatility in 2015 and 2016: the de-pegging of the Swiss Franc in January 2015; the extreme volatility of the New Zealand dollar in August 2015; and the sterling flash crash in October 2016.
For a market that is open 24 hours a day, for five and a half days per week, and in a period that has been characterised by significant political turbulence – especially in Europe and the US – that is surprisingly consistent.
Pragma concluded that events in which banks actually stop providing liquidity are exceedingly rare, and tend to be “due to operational and technical issues that do not reflect an intentional withdrawal of liquidity.”
The depegging of the Swiss franc was by far the most extreme of the three instances and it took six months before liquidity provisioning by banks returned to normal levels, says Pragma.