All FX Eyes on BIS Triennial Survey

The whole FX industry is watching for the Bank for International Settlements’ Triennial FX Survey results, due this afternoon at 2pm GMT.

Why does it matter? Chiefly because it is the single most comprehensive, trusted and aggregated account of what has been going on in currency trading across venues, jurisdictions and a whole range of macro and micro criteria.

It’s a reality check for everyone with skin in the game. It tells us what currencies are trading the most, where and by what means.

It also gives us a sneak peek at the real market share of the FX market transacted on the electronic platforms and through voice trading.

When BIS last reported in 2013, London was the main FX trading centre by a comfortable margin, with more than 40% of all traded volumes.

USD and EUR remained unchallenged as the most traded currencies, but the renminbi gained strong ground by moving into 9th place on the list. It will inevitably be higher on this occasion.

Since then, the market has experienced the SNB revaluation, issues around conduct and interest rate divergence among the major central banks.

Some established currency trading venues also lost market share and were hampered by reduced trading volumes. This points to a number of themes. Firstly, internalisation of trades at banks; secondly, a drop in overall volatility and trading opportunities; and third, greater competition from upstart trading venues, who grabbed a piece of the FX pie.

The position of the banks as the main FX trading posts is also being challenged by a resurgent non-bank FX trading community, exemplified by the entry of XTX Markets in the top ten of Euromoney’s survey.

This continues the trend evident in past Triennial Surveys. The counterparty segment that contributed the most to growth in global FX turnover between 2010 and 2013 included smaller banks that do not act as dealers, institutional investors, hedge funds and proprietary trading firms as well as official sector financial institutions, among others.

In the 2010 survey, this segment surpassed other reporting dealers (i.e. banks trading in the interdealer market) as the main counterparty category in the Triennial Survey for the first time.

What this shows is that the funds and HFTs are established as major players and are cleaning up their act to become genuine makers and takers in the market. This is an inevitable evolution and blurring of the buy and sell side.

This afternoon we expect the BIS to report relatively flat volumes, if not a dip on 2013. The gallery of top traded currencies will remain broadly the same but the devil will, however, be in the detail and the percentage movements showing direction.

There is will be many things to look out for. Which currencies were the most traded? Will London retain its FX crown? Which instruments were the most popular?

All will be revealed in the next few hours. The industry awaits…

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