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Foreign Exchange

Goldman, Dresdner, the hedge fund and the barrier

Serious questions are being asked by many FX participants after the fun and games that occurred in EUR/SEK in the afternoon of July 5.

It was widely known that a significant barrier was in place at 9.1500, as Lehman advised its clients the day before. “There is a big barrier at 9.15 EUR/SEK that still is defended. Once broken we could head lower quickly and aim for 9.1180,” the bank wrote. The events that took place as the barrier was defended and possibly breached have resulted in some serious accusations flying around, which may apparently result in litigation.

According to well-placed sources, the option position was initiated by Drawbridge, part of the US-listed Fortress Investments Group. At the time of the trade, it is believed that Drawbridge’s prime broker was Dresdner Kleinwort, although at the time of expiry, it had switched to Deutsche. As is often the case with such options, a battle royal ensued between several market big hitters who were trying to trigger the barrier event and those who were defending it. According to one source, this is only a game for big boys. Apparently, Goldman Sachs was the main barrier defender, although two other banks are also known to have been bidding 9.1515 ahead of the 9.1500 trigger level. There were several sellers, with Dresdner said to have been the most prominent.

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