Spot FX

Strong start to autumn for most spot FX platforms

As autumn arrived, most spot FX platforms experienced an uptick in volumes, despite there being fewer trading days in September, compared to August. This is thanks to another month of turbulence in Italian politics, policy updates from the Federal Reserve and new US trade tariffs.

Amidst a busy trading month for financial markets, NEX reported a 2% increase in spot FX trading activity, with volumes increasing from $84.7 billion in July to $86.1 billion in September. However, on a year-on-year basis, volumes saw a significant 12% decline.

Thomson Reuters’ spot FX volumes grew 4.2% to $98 billion from August, but it too suffered a fall, dropping 4.8% when compared the same month in 2017.

Spot FX volumes on Fastmatch declined for the fourth month in a row, falling by 4% from $19.5 billion in July to $18.6 billion in September – its lowest figure of 2018. Year-on-year comparisons also show a decrease of 11.4%. Not good reading for a firm which has endured a period of difficulty following some very public staff changes.

However, it’s a cheerier story for Cboe FX, with spot volumes rising by 3.5% from August to $35.7 billion. Year-on-year growth was a healthy 8.1%.

But the biggest news continues to come from FXSpotStream, which reported an ADV of $31.9 billion, up 12.3% from August and up a huge 33% when compared to September 2017.

 

*All figures in US$

Insight

It was a strong start to Autumn for most spot FX platforms as they continued their recovery from the summer slump. They seemingly benefitted from a particularly busy news month, with plenty of column inches devoted to developments in the FX industry.

The main exception was Fastmatch. Its troubles continued as volumes dropped for the fourth month on the bounce. Euronext, which now owns 97.3% of the firm, and its founder and former CEO, Dmitri Galinov, continued their very public fallout in September. With a court case looming, it seems like headlines they could do without.

September also saw CLS’s long-serving CEO David Puth resign. A veteran of the FX industry, David played a key role in the development of the FX Global Code. Under his stewardship, CLS remained a safe pair of hands, with its core settlement service providing a unique level of safety and reassurance for trading 17 global currencies. We wish him all the best in his future endeavours.

Speaking of the FX Global Code, Edwin Schooling Latter, head of markets policy at the Financial Conduct Authority, said it is considering endorsing two voluntary codes: The Global FX Code and the UK Money Markets Code. This has put greater onus on senior managers to sign up. Expect a flurry of activity over the next few weeks.

Indeed, a report from NEX showed how its adoption has improved trading behaviour on EBS Direct, a relationship-based, disclosed platform, with a significant reduction in hold times, reject rates and a tightening of spreads.

All very positive, but it didn’t shed light on trading behaviour on its more popular, anonymous EBS Markets platform. Perhaps a second volume of the report is imminent?

Future predictions

It was reported in Bloomberg that Blackstone Group, the ownerof Thomson Reuters’ financial-and-risk arm, (also known as Refinitiv), is weighing a sale of FXall, a currency trading platform. According to people familiar with the matter it could fetch as much as $3bn.

Thomson Reuters has said it “remains a very strategic part” of its FX operations. Given the recent trend of exchange operators acquiring currency platforms to diversify their offerings, there is likely to be plenty of interest from potential buyers in the market.

Speaking of Refinitiv, confidential sources (OK, the FT…) also report that a rap song has been written by an employee to boost morale amongst staff.

In terms of currencies, the focus will be on the trade-weighted USD which continues to do well. Whether it can maintain this momentum is questionable, especially when investor attention eventually shifts to the bloating U.S. budget deficit and fading impact of the fiscal stimulus. The mid-term elections will also be in the back of their minds, with the outcome far from certain.

In Europe, the euro remains grounded by loose policy from the European Central Bank as well as a fair amount of political strife relating to Brexit and Italian politics. However, industry insiders believe it has the potential to bounce back over the coming year, particularly as investors start to expect an end to Fed tightening.

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