Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Why did the Swiss franc take half a million milliseconds to hit one euro?


In high frequency trading, nine minutes is an eternity: it is half a million milliseconds – enough time for five billion quotes to arrive in the hyperactive US equity options market at its peak rate. On a human time scale, nine minutes is enough time to watch two average online content videos.

So what puzzles me about the soaring Swiss franc last week (January 15) is not that it rose so much, nor that it massively overshot its fair level, but that the initial rise took so long. Here is the time line of how the franc moved:

  • At 9:30 am GMT, the Swiss National Bank (SNB) announced that it was “discontinuing the minimum exchange rate of CHF 1.20 per euro” that it had set three years earlier. I am taking the time stamp of 9:30 GMT from the “dc-date” field in the RSS feed of the SNB which reads “2015-01-15T10:30:00+01:00” (10:30 am local time which is one hour ahead of GMT).
  • The head line “SNB ENDS MINIMUM EXCHANGE RATE” appeared on Bloomberg terminals at 9:30 am GMT itself. Bloomberg presumably runs a super fast version of “if this then that”. (It took Bloomberg nine minutes to produce a human written story about the development, but anybody who needs a human written story to interpret that headline has no business trading currencies).
  • At the end of the first minute, the euro had traded down to only 1.15 francs, at the end of the third minute, the euro still traded above 1.10. The next couple of minutes saw a lot of volatility with the euro falling below 1.05 and recovering to 1.15. At the end of minute 09:35, the euro again dropped below 1.05 and started trending down. It was only around 09:39 that it fell below 1.00. It is these nine minutes (half a million milliseconds) that I find puzzling.
  • The euro hit its low (0.85 francs) at 09:49, nineteen minutes (1.1 million milliseconds) after the announcement. This overshooting is understandable because the surge in the franc would have triggered many stop loss orders and also knocked many barrier options.
  • Between 09:49 and 09:55, the euro recovered from its low and after that it traded between 1.00 and 1.05 francs.

It appears puzzling to me that no human trader was taking out every euro bid in sight at around 9:33 am or so. I find it hard to believe that somebody like a George Soros in his heyday would have taken more than a couple of minutes to conclude that the euro would drop well below 1.00. It would then make sense to simply lift every euro bid above 1.00 and then wait for the point of maximum panic to buy the euros back.

Is it that high frequency trading has displaced so many human traders that there are too few humans left who can trade boldly when the algorithms shut down? Or are we in a post crisis era of mediocrity in the world of finance?

Updated to correct 9:03 to 9:33, change eight billion to five billion and end the penultimate sentence with a question mark.


One response to “Why did the Swiss franc take half a million milliseconds to hit one euro?

  1. WIMWIAN March 10, 2015 at 6:50 pm

    Prof. Varma, why would a “George Soros in his hey day” know that 1.0000 is the level to anchor his expectation of where EUR-CHF should be without SNB floor? And there in lies your answer why it took time to adjust. It was a combination of lazily left Good Till Cancelled orders meeting the fearful brokers closing their bankrupted clients.

    Also, I presume a small typo, you must mean “hit” every bid, rather than “lift” for the hypothetical George Soros.

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