Global FX vols up driven by UK

Latest semi-annual FX survey data from top central banks (FX Joint Standing Committees) show that in Apr 17 FX average daily vols (ADVs) for the top six FX centres was $4.56tn/day, an increase of +5.5% from Oct 16 and +7.5% compared to Apr 16, and now at the highest level since Oct 14.

Global FX volumes

Top six global FX trading centres (central bank semi-annual FX survey)

London led the way with a 12% increase to $2.44tn/day, up from $2.18tn/day in Oct 16. Singapore however saw a small -3.7% fall and Tokyo was down -9.3%. Confirming that even with the Brexit uncertainty, London remains the undisputed top centre for FX as can be seen in the chart below, with 54% share of the $4.56tn/day traded by the top six centres.

% share of top six FX trading centres (central bank semi-annual FX survey date)

Looking in more detail at London and using the Bank of England survey data, the biggest rise was in FX Swaps which accounted for over half the increase, followed by Spot which accounted for 21% of the London increase. Drilling into client segments, we see that although Reporting Dealers are still the largest segment accounting for 47% of ADV (down from 50%), non-bank institutional clients now account for some 27% of volume compared to the non-reporting banks at 23%.

London FX % vols by user segment (BofE semi-annual FX survey date)

If we look at what’s behind the rise in institutional client flow, it seems to be that more buy-side firms trading FX as an asset class and taking more control of that execution. When we start to drill into execution preferences for buyside, we see that the continued trend of buyside executing more on multi-dealer platforms (MDP), driven in part by the regulatory need to compare pricing and demonstrate BestEx.

Single Dealer Platforms (SDP) vs Multi Dealer platforms (MDP)

When we look at overall flows by SDP (a bank’s own relationship channel, which could be their in-house build platform, or a vendor solution and MDP (such as FXAll, 360T etc), we can see from the chart below that the ratio  of flows via SDP compared to MDPs (SDP/MDP) which has been falling the 2008 peak of 273% (which meant that flows via SDPs were 273% higher than flows via MDPs) to a low of 64% in Oct 16, may be starting to recover slightly, with the ratio rising to 72% in Apr 17.

London FX vols showing ratio of flows by SDP vs MDP (BofE semi-annual FX survey date)

Currency pairs: In terms of currency pairs traded, the survey data shows that EURUSD remains the top pair with 24% or all ADV followed by USDJPY at 19%.

London FX vols showing top currency pairs

About Paul Blank

A career working in financial markets. Early career as an FX Trader, before moving on to e-Trading platforms and Fin-Tech solution providers. This blog looks at how evolving regulatory landscape impacts market participants across the capital markets, e-trading platforms/venues.
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