Market shocks now happen every month, says FCA head

Market shocks that used to erupt once a decade are now happening every month because technology, the dominance of big firms and tighter liquidity are increasing volatility, the City regulator has warned.
Nikhil Rathi, head of the Financial Conduct Authority, said that greater connectivity of global markets had created a landscape where “predictable volatility” was a constant.
His comments came as Nathanaël Benjamin, executive director for financial stability strategy and risk at the Bank of England, told The Times the environment was “very jittery” and that the Bank was “clearly monitoring really closely what’s happening in the Middle East”.
“The key thing that people are watching is oil prices,” Benjamin said.
The last big market rout occurred in early August, when equities around the world suffered sharp falls in a slump that was partly driven by disappointing earnings from big American technology companies and weak US labour market data.
“Today a small blip can ripple across equities, fixed income, FX, commodities or more recently, crypto,” Rathi said. “And things that used to be one-in-ten-year events now happen every month.”
He blamed this partly on the pervasiveness of technology in finance and other industries, which meant “a single glitch can run haywire through global infrastructure”.
Tougher liquidity conditions had added to this fragility, Rathi said, as had market concentration risks. “Just ten firms represent nearly 50 per cent of the FTSE 100’s value. In the US, seven companies generated over half of the S&P 500’s 26.3 per cent return last year.”
He said the FCA was “still piecing together exactly what happened [in August] to understand if there are new systemic risks needing deeper examination”.
Benjamin, who was speaking a week after the Bank warned that markets remain “susceptible to a sharp correction” , said rising oil prices were a key focus.
He added: “The other thing we are monitoring quite closely is what happens to shipping routes. And we’ve seen some disruption in the shipping routes, some increases in shipping time earlier in the year but by and large, supply chains have been able to absorb that so far.”
Rathi argued that Britain could lead the world in ensuring the financial system can cope with future crises. The FCA was seeking to “shift from reactive to proactive regulation”, he said, adding that recent changes to the UK’s listing rules and plans to overhaul prospectuses were examples of the watchdog “challenging longstanding principles to seize the opportunities in this age of predictable volatility”.
He also signalled that the regulator was examining loosening City rules to bolster liquidity and aid the growth of specialist trading firms, which have enjoyed fast growth in the US in recent years. Firms such as Jane Street and Citadel Securities are now big players on Wall Street and vie with banks for trading business.
“Too often, rules designed for large global banks, with heavier capital burdens, limit smaller firms’ ability to contribute liquidity,” Rathi said. “We’re exploring how adjustments could encourage wholesale trading and improve market liquidity and may in turn reduce barriers to entry for specialised trading firms that don’t hold retail deposits.
“Just look at the way non-bank traders are now capturing flows across US equities. A massive shift, in the space of just a few years.”