The United Kingdom's Serious Fraud Office may announce an investigation into potential criminal activity in rigging the global foreign exchange markets.
Monday, July 21, 2014
According to Bloomberg's unnamed source, the investigation will focus on allegations that the banks traded on their own accounts before placing their clients' transactions, in order to profit from the market movements, as well as potential rigging of the key WM/Reuters rate. That rate represents a critical pricing benchmark for the $5.3 trillion daily market in foreign exchange, and could potentially affect millions of funds and individual traders. The ensuing scandal could deeply affect the world's currency markets, and the ensuing domino effect could actually hurt the global economy.
Scandal puts eyes on London regulators again
The investigation would deepen concerns about deep-seated fraud at the highest levels of the banking world. In 2012, the LIBOR scandal rocked the world of finance, as it came to light that the banks which set the London Interbank Overnight Rate, a key figure which fundamentally sets the value of $350 trillion in derivatives globally, had been colluding to report their lending rates at artificially higher or lower rates in order to harvest profits.
As a result of the LIBOR affair, the British Banker's Association, which had set the rate, passed control of the process to UK regulatory bodies. In addition, Parliament passed new laws specifically regarding LIBOR management and set harsh new penalties for fraud.
Forex as a utility
The Financial Stability Board - an international group based in Basel, Switzerland that consults on global finances- has requested comments on proposals to change the way in which the WM/Reuters rate is set, the market infrastructure surrounding forex rates, the reporting of those rates and other key elements of the forex market.
In London, the Financial Times endorsed the idea of a more centralized, fully-regulated foreign exchange market, writing in an editorial that "one of the proposals is revolutionary. The FSB believes that market participants should set up a central global utility to match buy and sell orders from around the globe. This would help drag the foreign exchange market into the modern world."
Forex and binary options
The proposals above, if adopted, could radically change the way market participants think about foreign exchange. Overall, it would appear that the proposed regulatory changes would result in a safer, more stable and less easily-manipulated forex market.
In the meantime, investors looking to hedge or augment their forex trading portfolios might consider binary options which are registered in the US and overseen by the Commodity Futures Trading Commission.
Forex binary options have a capped risk, with maximum profits and loss known at all times, and offer agile trading opportunities in both highly volatile markets and flat ones. They allow you to take a position on the relative exchange value of a number of key currency pairs at a given time, including the US Dollar, the British Pound Sterling, the Euro, the Yen and the Swiss Franc.
This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.