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Volcker rule could hurt liquidity in FX spot market

Damien (damienwah)
Aug 30 2012 at 09:10
8 posts
Hi people.. as most of you might already know, the Volcker rule would most probably take its full effect next year. I would like to have a light discussion on this.

Do you think this would affect the fx markets hard? If there's lower liquidity, transaction costs would run up as well..

Anyone in banks or prop trading firms that have plans or strategic changes due to the lower liquidity if this really kicks in? (Anyhow, lots of firms and institutions are petitioning that FX markets should be exempted)

"Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time. -Thomas Edison"
James_Bond
Aug 30 2012 at 14:55
556 posts
damienwah posted:
Hi people.. as most of you might already know, the Volcker rule would most probably take its full effect next year. I would like to have a light discussion on this.

Do you think this would affect the fx markets hard? If there's lower liquidity, transaction costs would run up as well..

Anyone in banks or prop trading firms that have plans or strategic changes due to the lower liquidity if this really kicks in? (Anyhow, lots of firms and institutions are petitioning that FX markets should be exempted)


Damien, I wasn't actually aware of such a rule. Tried reading on wikipedia, but the lingo is too technical for me 😳.
Can you please explain in short what does the rule mean for the forex industry?

Damien (damienwah)
Aug 30 2012 at 15:18
8 posts
Hi James .. the following is a webby where yiu can read up more on it.

https://www.risk.net/risk-magazine/news/2184938/volcker-rule-hurt-liquidity-spot-market-participants-warn

"Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time. -Thomas Edison"
DrVodka
Aug 31 2012 at 03:48
297 posts
Definition of 'Volcker Rule'
Trading restrictions placed on financial institutions. The Volcker rule separates investment banking, private equity and proprietary trading (hedge fund) sections of financial institutions from their consumer lending arms. Banks are not allowed to simultaneously enter into an advisory and creditor role with clients, such as with private equity firms. The Volcker rule aims to minimize conflicts of interest between banks and their clients through separating the various types of business practices financial institutions engage in.

 
Investopedia explains 'Volcker Rule'
Named after former Federal Reserve Chairman Paul Volcker, the Volcker rule basically stops banks from doing their normal business (installment loans, residential mortgages, equity credit loans, deposit services) as well as trading on their own behalf. The rule was introduced following the recession of 2008, to control the risk associated with the financial sector. Wall Street banks were accused of accumulating an excessive amount of risk and unfair business practices due to the inability of regulators to properly monitor their complex instruments and activities. The Volcker rule aims to protect individuals by creating a more transparent financial framework which can be regulated with greater ease.

Read more: https://www.investopedia.com/terms/v/volcker-rule.asp#ixzz255m9evxw

Read more: https://www.investopedia.com/terms/v/volcker-rule.asp#ixzz255m13umH

Moreno Rodrigez (MRodrigez)
Aug 31 2012 at 06:39
168 posts
damienwah posted:
Hi James .. the following is a webby where yiu can read up more on it.

https://www.risk.net/risk-magazine/news/2184938/volcker-rule-hurt-liquidity-spot-market-participants-warn


thanks for the info.

TheLastBear
Aug 31 2012 at 12:58
186 posts
It will have a negative impact for US based financial firms and simply force them, their jobs as well as tax revenues to leave the country and set-up in business friendly countries outside the reach of US jurisdiction. Sarbanes-Oxley forced tens of thousands of companies to flee the US and the UK welcomed them which allowed the creation of the financial center of the world in London. The Volcker rule as well as Dodd-Frank will do more of the same and so does the idiotic tax system we unfortunately get raped by.

Pax puts the X in Forex.
James_Bond
Sep 02 2012 at 06:41
556 posts
Reading through it, it looks like it's going to have a huge impact on the economy of US, which will affect forex trading as well.
I have to agree with TheLastBear - I think it's only a matter of time before firms will start moving their businesses overseas, just as you see with US forex firms. I think the rule will not hurt too much forex trading, just force it to happen elsewhere.

At this point, it looks like this rule is going to hurt their economy rather than to protect it.

Marvin (nevercaughtup)
Sep 02 2012 at 08:49
11 posts
The United States is not the country it used to be. I left the USA 2.5 years ago and expatriated to the Philippines. Not only had the NFA messed things up for currency traders, but they had stripped our rights to even wager on sporting events through offshore sports books.

One of my reasons for moving was healthcare. I could not get health insurance in the USA because of pre-existing conditions. I couldn get it (at a very expensive rate), but all preexisting conditions would not be covered. Last December I spent a week in Saint Lukes Global City Medical Center which is a hospital I would go to over any hospital in America for quality care. My total bill came to less the the equivalent of $2,000 USD. In the USA it would have been over $50,000. I had surgery and all fees for doctors and everything was included in my bill.

The Volcker Bill is just another brick in the wall of oppression the USA is building around it's citizens. I read that over 500 Americans a day are expatriating to other countries and I believe it.

It is sad that the land of the free has become the land of government intervention.

Where there's odds . . . there's hope.
James_Bond
Sep 03 2012 at 10:09
556 posts
Question is, why do they do that? I don't think this is by choice. The economy has slowed down since the melt down in 2008, and it appears its slowing again the past few months - I think the point of these rules is to show they are do trying to do something to help stabilize the economy, although it may be too little too late.

The Volcker rule is the same as reducing leverage - once you decrease exposure, risk reduces. I just hope the effect of traders moving their businesses elsewhere won't overweight the point of the rule, which is to help to the economy, not ruin it further.

As to the health care - this isn't new as far as I'm aware - USA simply doesn't invest in this field as other countries do. I'm sure you found some disadvantages in the Philippines which you haven't encountered in the US - as the saying goes: 'the grass is greener on the other side'.

OnTheEdge
Sep 03 2012 at 20:35
44 posts
It was very interesting to me that in many forums US Citizens complained about 'unfair leverage' with relation to trading contests ( a good example is over at the dailyfx.com forums which is FXCM, their king of the micro contest has one of the biggest payouts each month I've found). There are several threads which go into great details to try and level the lack of leverage available to US traders, which have come about as a result of Volker and Dodd-Frank.

What I found interesting is that 14,000+ old women put together petitions to send to Washington, yet we didn't hear of any online petitions or other measures from traders to send anything to Washington in favor of Not implementing either of the previous mentioned. However, traders had plenty of time to b***h about the unfairness of leverage.

'It is not the majority that rules but those few who take action'

Lastly, moving abroad,

Unless you like being over taxed there a numerous countries that offer better tax rates for traders than the US, IMHO you would be a poor business person if you didn't evaluate the best opportunities to keep more capital in your account.

Yes, James_Bond sometimes the grass REALLY is GREENER on the other side, not singling you out just the statement.


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