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Foreign Exchange

CFTC’s concerns about FX industry annoy pros

Comments made by the US regulator at an FX industry event in Miami in February have raised the hackles of some market participants over the thorny issue of ghost or phantom liquidity.

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In a speech to the TradeTech FX conference, Andrew Busch – who was named the Commodity Futures Trading Commission’s (CFTC) first chief market intelligence officer less than 12 months ago – said the CFTC was concerned about loss of liquidity in the FX market and specifically whether some of it actually exists.

A survey conducted by the organizers of the event among traders and heads of FX at US-based financial institutions found that half of respondents viewed finding alternative methods to source liquidity as a priority.

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Dan Marcus, ParFX

Busch’s views have garnered some sympathy, with ParFX CEO Dan Marcus describing phantom liquidity as a hindrance to traders that not only portrays an inaccurate picture of market depth but also results in a lack of confidence across the board as efficient price discovery and execution is unachievable.

Some electronic communication networks – to look like they are offering a deeper market – will pretend to appear like a client to other networks and republish the depth, adds Nick Dyne, co-founder of Cash Netting Services (CNS).

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