Magazine article Modern Trader

fX-Rated

Magazine article Modern Trader

fX-Rated

Article excerpt

Last fall, on the day that Lehman Brothers fell, I was on a flight to Florida for a CME Group financial conference. The plane was filled with industry people and everyone was abuzz about Lehman's failure and possible market fallout. But what was remarkable was the calm, even when the meeting began that afternoon. The biggest CME members were attending this conference, and relatively few, if any, seemed overly concerned. Headlining the opening speech, and what was serendipitous timing on the CME's pare, was none other than Paul Volcker, former U.S. Federal Reserve chairman, who has seen some volatility in his days.

Of course Volcker spoke about the "reversal of the exuberance" in the markets, noting that "fear is driving the markets today." He spoke of a "failed financial structure held together by extraordinary actions," and said that, although he was "reassured" with the CME's clearinghouse, he wasn't as confident with the credit and securities markets. Perhaps he was speaking to his audience, but frankly, he was right on target. And that's why there was relative calm with that group, as the clearing systems forged in the futures and options industries have proven to work. Later Volcker, in a roundtable with several global central bankers, noted that he foresaw trouble in the $3 trillion dollar a day forex markets, especially on the retail OTC side. Especially in the United States.

Anyone who watched the fall of Refco, which carried a big name and vanished practically overnight, understands where Volcker was coming from. Although the futures side of the accounts were moved with no problem, the OTC forex players got little back on their dollars. Clients were stunned to realize they weren't protected, but they shouldn't have been.

A week after the CME forum, I moderated a retail forex panel at a Profit/Loss conference during which I asked the panelists--three forex brokers and one professional trader--how they dealt with account safety nets. …

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