(Mar 14) -- Currency market participants express concern that liquidity is declining and may be exacerbating flash events, the Bank for International Settlements said in a report on foreign-exchange liquidity in the Americas. "Changes
in liquidity provision by traditional market-makers, fragmentation and technology, may have contributed to FX markets' increased susceptibility to periodic episodes of illiquidity during periods of stress."
At least 16 metrics are used to measure liquidity, according to survey of central bankers and market participants. Algorithmic trading strategies
enhance liquidity during normal market conditions, while adding volatility in stressed periods, the BIS said, citing views of some market participants; and f
ines and regulation have reduced incentives for bank dealers to engage in discretionary risk trading. Technological advances have
lowered transaction costs, but may have contributed to market fragmentation, the BIS said.