Sources cited by the Financial Times have indicated that the foreign exchange market probes which have been plaguing the balance sheets of major banks may continue to do so in the coming quarters. According to the information cited by the newspaper, the U.S. Department of Financial Services (DFS) is to contiue its foreign exchange market manipulation investigations.
The findings of the regulator could be revealing of a more widespread market abuse than previously assumed. The DFS has been committed to expose wrongdoings on the electronic foreign exchange market. The trading platforms which are used by Barclays and Deutsche Bank have been closely scrutinized as U.S. authorities have also requested cooperation from BNP Paribas, Credit Suisse, Goldman Sachs and Societe Generale.
Should the investigators manage to prove wrongdoing, the episode will put an end to the industry’s claims that the electronic market is much more difficult to manipulate. That may indeed be the case, but if the possibility still exists, the market might end up dramatically restructured.
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Rumors about a new design of the foreign exchange market have been widespread and a number of exchanges have already committed to participate in it. BATS Global Markets was the latest amongst major exchanges to join the fray with the purchase of Hotspot from KCG.
Nasdaq, the CME Group and Eurex have already ventured into the space, exposing a push by major exchanges to take the role as utilities in the foreign exchange market, a state that revamped the stock market more than a decade ago with mixed success.