In a comprehensive article, the Financial Times just reported that the ACI Financial Markets Association is currently lobbying for a shift of the forex market to regulated, exchange-based trading. The ACI Fiancial Markets Association is an organisation that protects international forex traders and tries to implement new measures to improve investors ‘security and market transparency. Marshall Bailey is suggesting that such gradual shift may be desirable for the future of the forex market.
The forex market is an OTC market (not exchange-based)
In our article, differences between binary options and forex, we already covered some of the specificities of the forex market. It is an Over-the-Counter (OTC) market for which there exists no central clearing room to ensure the counterparty risk. Even thought the forex market is a continuous market, there exist currency rates fixings that are agreed between few financial institutions. These fixings are used to price and mark-to-market multiple financial instruments.
The outcomes of the FX rate rigging scandal
These suggestions, from major financial organisations such as the ACI and the Bank of England, turn out to be the outcomes of the FX rate rigging scandal that shacked the forex industry over the last month. Popular financial institutions (mostly banks) have already been forced to pay multi-billion dollar fines as a result of this FX rate rigging scandal in the UK, the US and in Switzerland.
Senior regulators around the world are now calling for a shake-up in the way currencies are traded. Mr Bailey told the Financial Times in an interview that there was a good argument for an obligatory shift to exchange-based trading on forex. A number of reformers have suggested making forex markets more transparent by forcing trading on to regulated exchanges.
A good news for binary option brokers
This is good news for binary options traders that mostly speculate on FX rates. There is no doubt that this new wave of regulatory requirements will make the forex market more transparent and that a central and global clearing system may have a downward pressure on trading commissions.