by Jason Young, Executive VP and Head of Deliverable FX at Fortex Inc., with contribution from our Stanford Intern Francis Choi
The Bank for International Settlements (BIS) released its Triennial Central Bank Survey last week, a report which is published every three years since 1986, and the notable highlight was that overall daily FX volumes averaged $5.1 trillion in April of this year, down dramatically from $5.4 trillion in April of 2013. Spot volumes also fell to $1.7 from $2.0 trillion in 2013, the first time this figure has fallen since 2001. The drop in the overall figure was due to the dramatic fall off in the spot market turnover, with volumes of FX swaps actually increasing.
The survey issued by the “bank for central banks” also showed changes in turnover by counterparty, most notably an increase in inter-dealer FX trading and FX trading by institutional investors, alongside a decrease in FX trading by hedge funds. The retrenchment by the hedge fund sector is likely due to a generally higher level of anxiety surrounding central banks’ involvement in the FX space (most recently the Swiss Franc peg removal and the Chinese Yuan devaluation in 2015), regulatory strain, and FX rigging cases.
The overall drop in trading volumes appears to be a sign that FX market players are reducing their international activities as regulation continues to creep into the OTC space and as credit and counterparty risk attitudes skew towards one of aversion.
[Graphs © Bank for International Settlements (“BIS”)]
Highlights from the BIS report Triennial Central Bank Survey Foreign exchange turnover in April 2016:
• FX trading averaged $5.1 trillion per day in April 2016, down from $5.4 trillion in April 2013.
• For first time since 2001, spot turnover declined, falling to $1.7 trillion per day in April 2016 from $2.0 trillion in 2013.
• In contrast, the turnover of FX swaps rose further, reaching $2.4 trillion per day in April 2016.
• The US dollar remained the dominant vehicle currency, being on one side of 88% of all trades in April 2016.
• The euro, yen and Australian dollar all lost market share, while the Renminbi doubled its share to 4% to become the world’s eighth most actively traded currency.
• Trading between reporting dealers grew, accounting for 42% of turnover in April 2016, compared with 39% in April 2013.
• In April 2016, sales desks in five countries – UK, US, SG, HK, and JP – intermediated 77% of FX trading, up from 75% in April 2013 and 71% in April 2010.
Fortex will be attending and sponsoring the TradeTechFX conference next week in London. Please reach out to Jason Young if you would like to get in touch. Email: email@example.com Phone: +1 650 549 7351