Forex is surviving the credit crunch

Despite this, the foreign exchange markets continue to survive unscathed. Even the hardest hit are making revenue gains from FX, as would be expected during times of volatility. And although credit has been in the spotlight in the wider market, the price of FX prime brokerage hasn't really been affected, with credit largely collateralised.

Clearly though, the argument for the exchange model in FX, with its central counterparty model and clearing, is getting stronger. But there is also an argument that a quasi exchange model already exists in FX. The market, and certainly the prime brokerage market, is effectively dominated by a small number of large players, all cross-collateralised and all trading through CLS. Some say there's a great distribution of risk across the market anyway, so the industry already functions as a diversified quasi-exchange.

An interesting theme is whether fears affect the available liquidity in the FX market. Liquidity - defined as prices in the market that are available for people to trade on - is by and large put into the market by the top 10 banks. Given the volatile market conditions, that liquidity consists of prices that have been widened as a result of managing risk in the appropriate manner.

One prime broker said that, despite this, the actual amount of liquidity available in the market is not being materially affected, people are not pulling out of the market, and are not reducing the amount of credit available to the key names.

"It's not about how many names you've got credit for as such," he said. "It's about how much credit you've got for the big guys. If you've got credit for the big names, then there's no real reduction in available liquidity."

Certainly, banks are being rationally conservative about their stance towards all sorts of things at the moment, and credit is one of them. But, say some, it's not materially affecting the quality of the forex market.

In the instance of Bear Stearns, with JP Morgan guaranteeing trading obligations and providing management oversight for the bank, there's even less reason for disruption in the FX market.