Electronic Market Makers Gain Shares in FX


According to the Bank for International Settlements’ latest triennial survey, non-bank electronic market makers have deeply penetrated the forex market that was reserved for bank brokers five years ago.

The BIS survey indicated that the share of leading trading firms in cash e-commerce with buying clients has risen to 32%, from 10% three years ago, citing the 2019 Euromoney survey.

“What differentiates these new players from traditional bankers is that they substitute speed for the balance sheet,” added the BIS. “As they have evolved into market makers, alongside the major currency trading banks, they have become an integral part of currency intermediation and a key determinant of liquidity conditions, particularly in the market. cash. “

The survey continued that FX e-commerce first took off in the inter-dealer market, but in recent years the dealer-to-customer segment has seen the greatest increase in electronization.

BIS continued that electronic execution enables rapid trading and therefore contributes to overall FX revenue growth.

“Overall, the share of foreign exchange transactions conducted electronically only increased slightly to reach 56% in 2019,” the BIS added. “However, there are notable differences in the progression of electronization between instruments and in inter-dealer market segments compared to dealer-customer market segments.”

Electronic platforms

Instinet, owned by Japanese bank Nomura, today announced the launch of Newport FX, an agency-model electronic trading platform for spot foreign exchange. Newport FX is a web-based, buy-side desktop application accessible through the company’s Newport fulfillment management system platform, the direct FIX API, or stand-alone.

Ralston Roberts, global managing director of Instinet Incorporated, said in a statement: “Connecting counterparties, providing aggregated access to liquidity and applying technology to increase efficiency have been our core tenets throughout 50 years of history of Instinet. “

Citi announced last week that it has named electronic trading platform provider Rapid Addition as one of its primary FIX platform partners for foreign exchange trading. The bank continued that e-commerce has grown rapidly and now accounts for 80% of global customer currency trading volume due to demand for increased price transparency and automated workflow.

Mark Meredith, Global Head of Electronic FX Trading and Algorithmic Execution at Citi, said in a statement: “It is vitally important that we are very competitive in API trading, and the key factors contributing to this are latency and stability characteristics.

Offshore trade

E-commerce tends to be reserved in a few large financial centers and therefore has led to a greater share of offshore commerce. The BIS said London accounts for 43% of global currency turnover, while the combined share of the four major trading centers, which also include New York, Singapore and Hong Kong SAR, stands at 75%.

“In today’s currency markets that trade around the clock, offshore trading is the norm,” the report added. 74%, respectively. “

Offshore trading has grown because it is much cheaper to establish counterparty and credit relationships with dealers and customers in only a handful of centers than in each country separately. Placing foreign exchange bureaus in the same location as other bank functions, such as money market and treasury units, also favors large financial centers.

“In particular, the main dealers tend to consolidate their electronic trading activities in one of the main exchange hubs,” the survey added. “This concentration thus partly offsets the decentralized over-the-counter structure of the foreign exchange markets. “

FX trading volumes

Greater electronization of dealing with customers helped push global currency trading volumes to $ 6.6 trillion per day in April this year, up from $ 5.1 trillion per day three years ago. .

The main contributor to overall FX revenue growth has been an increase in FX swap trading, driven by the use of swaps in managing bank funding according to the BIS.

The survey said: “In particular, making NDFs tradable on electronic platforms has attracted higher volumes from hedge funds and major trading companies.”



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