FX fraud conviction damages trust further… Concerns about liquidity impact

Market headlines in recent days will influence the evolving OTC FX market structure.  The judgement against “pre-hedging” activities will have serious risk consequences for market makers and the prices clients ultimately receive.  Market sentiment is biased negatively for liquidity with continued focus on independent oversight via FX TCA.

One positive ancillary benefit should be greater market transparency.  Banks will likely place even greater emphasis on trading electronically through ECNs and algorithms.    Further cementing the banking industry’s inexorable push toward fee based agency trading services over principal risk taking.

This prevailing sentiment coupled with looming regulatory changes create an uncertain environment for investors.  Buy-side firms need to exercise vigilance as they proceed forward.

·         Ex-HSBC foreign exchange trader found guilty of fraud

Jury rejects Mark Johnson’s defence that ‘pre-hedging’ is standard industry practice


·         Wells Fargo reportedly fires foreign exchange execs amid investigations


·         US fines HSBC $175m over ‘unsound’ FX trading

Fed says bank failed to stop traders from misusing confidential information