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Foreign Exchange

French for prime

Over the past two weeks I've been receiving a steady drip of information about a French bank supposedly screwing up a large GBP-related order.

Talk is that at least one trader has been suspended as a result.

Ostensibly, the story seems to be about the bank getting slightly ahead of itself and front-running the order. However, as one trader from another bank says, the market does a lot of second-guessing whenever this particular bank is seen to be buying or selling. How does a bank with a large order hide its hand in this world of transparency?

In the old days, you'd have told your broker to hold off passing your name. In fact, you may well even have sold a few when you were in fact a buyer, but these days the regulators don't like that. But there is a solution. I'm reliably informed that a few banks have seriously looked into it - and that is to trade through a prime broker.

Of course, that will increase the explicit costs of trading, but it may well massively reduce the implicit ones. From what I hear, it is already happening with some of the smaller banks; I reckon it will spread up the food chain.

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