Frankly I don't understand what cheating or boogie man you are talking about. I have never said anything about taking big prop plays. And when you talk about that personal knowledge are you referring specifically to fx market making or something else. Why you keep bringing Volcker, Dodd Frank, cheating to fx world is beyond my level of expertise. As far as I know these are OTC markets, you can trade on "insight information" freely.
Unless something has changed that I'm not aware off, there is no "cheating". Making markets you are disadvantaged because customers are taking prices from you and they are considered to be better informed. For the risk of getting big positions dropped on your lap (that you can't unload profitably) and the counter party risk, fx market maker gains some information about possible direction of the market. It might go that way, it might not, it's not a sure bet. If from the order flow he sees that the market might be going up, then he goes long now and reloads on the dips. Whether you want to call it directional play or simply reloading inventory so you have something to sell on the way up (making markets), it is all semantics and I don't look at it as "cheating".
Regardless "cheating" in fx, it might be a little bit dated but checkout Market Wizards for that Solomon Bro big fx trader, he explained perfectly that the issue of "riding" on customer's flow info is not cheating (what Schwager implied).
There is a real cheating going on regulated markets in US i.e. with specialty type orders given to HFT firms and you are talking about cheating in fx markets?
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