Volcker rule hits forex derivatives liquidity
Investors say foreign exchange market-makers are already trimming risk appetite ahead of the Volcker rule ban on proprietary trading in the US. But, while liquidity in emerging market and frontier currencies has suffered, some say the new regulation is not to blame
The foreign exchange derivatives market should currently be enjoying a happy time. Developing economies are moving from rescue to recovery, emerging currencies continue to make elbow room for themselves, and the new Basel III regulations leave foreign exchange relatively free of the crushing capital requirements placed on the rates and credit markets.
But there are signs that all is not quite so simple in forex. Buy-side participants report that market-making banks are trimming risk appetite and
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