The Bank of England regulator Robert Jenkins yesterday warned senior hedge fund managers to beware of a potential massive clampdown on their trading activities if the eurozone crisis triggers a return to the kind of liquidity crunch that followed the collapse of Lehman Brothers.
In a stark warning to traders who have become complacent again with the assumption that liquidity in financial markets – the willingness of investors to buy and sell assets – could be taken for granted, Mr Jenkins, pictured, warned that this may not be the case.
"Short-term traders count on it; algo [algorithmic "black box"] trading depends on it. Long/short strategies presume you can short...
"But here's the thing: confronted with sudden surges in cross-border flows, elected government will attempt to intervene in the interests of stability generally and to protect their taxpayers specifically, " Mr Jenkins said.
He added that "like air and water, market liquidity is no longer limitless and no longer free".