Since almost forever, the global top tier banks have dominated the FX markets. One only needs to review the EuroMoney FX bank rankings to see the global elite ‘flow monster’ top ten are pretty much the same group today as they were a decade ago.
When looking at market share of banks, we see from the chart below, that whilst the top banks still have the largest share of global FX flows, the market share of the top five FX banks has actually fallen from 58% in 2008 to 53% in 2015, an -8% fall. Whilst over the same period, the market share of banks ranked 21-50 rose from 3% in 2008 to 8% in 2015, a 178% increase (although from a much smaller base).
Some of the drop in market share of the top tier banks is a result of increased regulatory capital costs, and a reduced risk appetite, resulting in many banks stepping back from aggressive market making just to gain market share and flow. Now these top banks are more selective about liquidity provision.
What’s interesting, is the rise in market share of the smaller regional banks. These banks are hiring talent from top tier banks, including eFX technologists and strategists with experience of building a strong eFX franchise. However, the regional banks aren’t looking to build from scratch, what they are doing is investing in new world class web/HTML5 eFX technology systems and modular platforms to enable them to rapidly upgrade their capability.
Investment in ‘world class’ eFX platforms: Regional banks, are investing heavily in world-class eFX technology solutions, in many cases replacing legacy systems. This has enabled them to rapidly step up their ability to provide liquidity to their clients, and become market-makers in their core regional currencies to the wider market.