07 April, AtoZForex, London – In a letter to shareholders, JPMorgan CEO and Chairman Jamie Dimon stressed the ease with which traders can buy and sell securities. He acknowledged the fact that financial markets have been experiencing higher levels of volatility recently, and indicated that this trend is not going away anytime soon as low liquidity remains.
“Liquidity has gotten worse and we have seen extreme volatility and distortions in several markets,” Mr. Dimon wrote.
He continued: “In the last year or two, we have seen extreme volatility in the US Treasury market, the G10 foreign exchange markets and the US equity markets. We have also seen more than normal volatility in global credit markets. These violent market swings are usually an indication of poor liquidity.”
Low liquidity remains
Alongside Jamie Dimon, former PIMCO chief Mohamed El-Erian, Federal Reserve Gov. Lael Brainard, Mark Heppenstall, Passport Capital investment chief John H. Burbank, and the chief investment officer of Penn Mutual Asset Management have all expressed concerns about the low market liquidity in recent weeks.
Dimon’s note was a little worrying: “The good news is that the system is resilient enough to handle the volatility. The bad news is that we don’t completely understand why this is happening.”
He pointed to several causes, including fewer market makers, market makers that hold less equity, heightened trading regulations, and the smaller size of trades, among other things.
“One could reasonably argue that lower liquidity and higher volatility are not necessarily a bad thing,” Dimon wrote. “We may have had artificially higher liquidity in the past, and we are experiencing a return closer to normal.”
One thing is clear: “Lower liquidity and higher volatility are here to stay,” Dimon wrote.
Having said that, Wall Street needs to be prepared for the effects of liquidity when we do have bad markets, he wrote, because it is during bad markets that liquidity normally tends to decrease.
On that front, Dimon said, his firm is well-prepared.
“We are not overly worried about these issues for JPMorgan Chase,” he said, adding that JPMorgan’s trading businesses are “very strong.”
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