As every trader, analyst and investors were glued to the senate hearings with the Goldman team, the grilling questions by its chairman and members of the committee has shown the desire for a stricter regulatory body for the financial industry. Investment banks like Goldman Sachs as big as they could be, has undoubtedly have access in secondary markets being market makers for every possible deals that could be thought of.
Accessibility to information, putting together some creative financial packages and knowing where to place them in the market place for investors aware of the risk / reward ratio will always be the underlying advantage for an institution the likes of Goldman Sachs. Being an investment bank, broker-dealer and a major market maker that has the reliable source of information to implement such deals will also experience having to take risk from their holdings or inventories from their books and be able to spread these risks from varies positions made in the open market.
The level of sophistication familiar with these financial instruments on how they work may be quite complicated that everyone may and may not be in the same page understood within the trading mechanism. Making it appear to some as otherwise. The regulatory rule for fiduciary responsibility for the clients and the market makers responsibility of disclosure of positions maybe a very hard question for the senate panel to really understand. The line of questioning would sometimes be leading towards finding misrepresentations from the Goldman team regarding disclosure of other counter party involve in such a deal.
These has a direct correlation as to how the Foreign Exchange market works based on the contributory institutions and banks as reflected in the price action seen on the computer screen. Meaning that in the earlier trading days, institutions and other major banks participating on live FX dealing are shown as to price contributors on both bid/ offer. However, as some of the other trading platforms only shows the price quoted on both sides but not the institution participating in the market. The interbank traders with Thomson-Reuters dealing system knows who are actively trading in the market place.
Transparency on trading , counter-parties involved through broker dealers may sometimes be filtered out since broker dealers are not required to disclose their own portfolio's position, but rather may state that they may or may not have positions in behalf of their own clients. To define a clearer view of proprietary trading is what the regulatory commission would like to achieve at this time to avoid the next financial crisis.
Secondary markets for most trading institutions are carried out for the sake of spreading and managing risk in any asset based financial instrument. The Forex market is no different as the principles of trading has its own definitions to follow. Although, similar approach are made only for those traders, investors and portfolio managers who happens to be a little more sophisticated than others. The information is in the open market. Doing due diligence is just what it takes to have the right source of information, orientation and coming from reliable institutions involve in the industry.
