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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.

August FX activity boosted by EM sell-off

As the summer lull comes to a close, it has become apparent that there was no ‘sleepy summer’ for spot FX traders this year. Data from ECNs that publicly report their volumes has revealed that trading activity was largely up across the board in August.

NEX reported a 3% increase in spot FX trading activity as its volumes increased from $81.9 billion in July to $83 billion in August. Year-on-year volumes saw a slight increase of 2%.

Thomson Reuters’ spot FX volumes remained flat at $94 billion, but August’s trading activity represents a 14.7% increase when compared to the same period in 2017.

Cboe FX’s spot volumes rose by 3.9% from July to $34.5 billion. Year-on-year growth was an impressive 27.3%. The venue has now had 12 months during which ADV has been in excess of $30 billion per day.

Spot FX volumes on Fastmatch fell by around 2.5% from $20 billion in July to $19.5 billion in August. This follows a 9% decrease the previous month. However, year-on-year comparisons show an increase of 20%. Although it didn’t see an increase in ADV, its FX Tape saw a record amount of activity, averaging $83.6 billion a day in August.

FXSpotStream reported an ADV of $28.4 billion, up 2.5% from July and up a whopping 47.6% from August 2017.

CLS reported a 2.2% increase in August’s ADV to $425 billion. However, this is down 1.9% for the same period last year.

Spot FX*All figures in US$


Insight

After a very slow start to the summer trading season in July, data shows that most platforms experienced a slight recovery in spot FX volumes in August.

Despite the seasonal decline, trading activity in the market was stable, aided by volatility in emerging markets.

Once again, political events have played a major role in volatility. After the Turkish central bank lost its independence, the lira went into freefall.

The Argentinean peso was another currency in the crosshairs of currency traders. At the tail end of August, the central bank ratcheted up interest rates to a whopping 60%. Despite this drastic action, the currency continued to plunge 12%.

The Russian ruble experienced its worst month since April against the dollar, on the back of US announcements to introduce new sanctions against Russia

The decline in these currencies helped trigger a broader sell-off in the developing world’s markets, with JPMorgan’s emerging market currency gauge sliding 1% at one point to a new record low.


Future predictions

Industry insiders think that what happened in August is a sign of things to come over the next few months.

Political factors are continually weighing on currency movements. With prospective rate hikes from the US Federal Reserve coming into play before the end of the year and Trump’s Twitter account continuing to wreak havoc, many expect volatility to continue.

Some predict that the lack of stability and transparency in Turkey will drive more business away from the lira to ‘safe-haven’ currencies.

Closer to home, Brexit negotiations remain the topic of focus. There seems to be no end to near-term uncertainty; in fact, a Reuters poll predicts a no-deal Brexit could see GBP fall as much as 8%!

Foreign exchange in 2018: David Puth speaks to FX Week

Technology and regulatory guidance and principles will shape the foreign exchange (FX) market’s structure in 2018, according to David Puth, CEO of CLS, in an exclusive interview with FX Week.

2017 saw the publication of the FX Global Code, and a number of leading financial services and technology institutions confirmed their commitment to adopting and instilling its principles. This trend, Puth says, will continue in 2018 as the Global Foreign Exchange Committee publishes its final guidance on Principal 17 covering “last look”.

2018 will also be a year in which CLS expands its role offering new solutions to improve efficiency and reduce risk in the FX market.

“We are becoming more than a settlement utility. While delivering the risk mitigation that comes with safe settlement is our primary mission, we continue to focus on delivering products that solve client problems,” says Puth.

These include a same-day settlement service for five of the world’s most liquid currencies, and its much-anticipated distributed ledger technology (DLT) enabled netting service, CLSNet.

These technologies will likely have a significant impact on FX market structure, helping it to become more efficient and speed up the movement of currency around the world.

For more on what 2018 holds for FX, including David’s thoughts on the dollar and bitcoin, read the full interview here.

FX trading volumes rebound from summer lull

CLS’s currency trading volumes saw a significant uptick, as volatility in the foreign exchange (FX) market bounced back in September.

Following a bumpy period in geopolitics over the summer, trading activity rose strongly to almost USD 1.750 trillion in last month, according to the largest provider of settlement services in the global foreign exchange market.

Data from CLS showed a 10.7 percent month-on-month increase in the number of trade instructions submitted in September from USD1.581 trillion in July 2017.  This also represents a very significant 15.9% increase from this time last year, when volumes totalled USD1,514 trillion.

CLS’s figures reflect the trend observed in the monthly figures from many of the major trading platforms. However, given its position as a central settlement hub for the wholesale market, CLS provides the most comprehensive snapshot of activity, encompassing data from 18 global currencies and approximately 21,000 trading entities around the world.

 

 

 

 

 

 

In search of FX liquidity

Foreign exchange (FX) is one of the world’s most liquid markets, with around USD 5 trillion exchanged across borders every day.

However, there is a perception in the market that liquidity is on the wane.

This is not necessarily true, according to David Puth, CEO of CLS. Speaking to Euromoney, he said “There is a tendency for market participants to believe that liquidity was better in the past. From what we see at CLS, liquidity appears to be very strong. It is, however, different, with liquidity widely dispersed over a number of different trading venues.”

The pessimism may in part be as a result of the increasing difficulty in defining exactly what liquidity means in the modern market, and measuring it accurately.

This was one of the questions which a recent report on liquidity in the Americas from the Bank of International Settlements (BIS) attempted to address.

Traditional liquidity metrics, such as cost metrics, quantity metrics and trade impact, have their uses, but the report finds that none are a perfect way to measure liquidity in the modern market.

This is important because one thing which is clear is that the modern FX market is becoming increasingly complex, making understanding liquidity more difficult.

The market, like many others, is fragmenting as electrification proliferates the number of trading venues and sell side participants put more emphasis on internalising trades.

Whether this fragmentation is having an impact on traders ability to trade, remains an open question.

The BIS report indicates that fragmentation does appear to be having some impact on liquidity measures, particularly when it comes to periods of market stress.

It gives examples such as the 2016 British EU referendum and flash crashes, where traditional liquidity metrics appear to have been impacted across a number of currency pairs, at least over the short term.

Dan Marcus, CEO of ParFX, points out that sometimes individual metrics don’t always give the full picture. “It may be the case that volumes are down from where they were… [However] on ParFX we do not see evidence of a problem with market depth or the ability for traders, who need to trade, fill orders.”

This is in part because, while technology is driving fragmentation, it is also creating opportunities to aggregate liquidity in more efficient ways.

“Buy-side traders have responded [to FX market fragmentation] by turning to algorithms and taking on more execution risk themselves”, says Pragma’s CEO David Mechner.

Liquidity is the lifeblood of the FX market, it is vital that the market can measure it in a way which gives an accurate representation of what it is like to trade. One solution, suggested by Mechner, is a consolidated tape, much like in equities. Until then, the market should think carefully about the metrics used to measure the market and ensure they are fit for purpose.

Currency trading volumes bounce back in September

After August’s annual slowdown, currency trading activity bounced back to almost USD5 trillion in September.

Currency trading activity rose strongly in September, according to the largest provider of settlement services in the global foreign exchange market.

Data from CLS showed a 17.5% month-on-month increase in the number of trade instructions submitted in September, reaching 1,038,025. The value of these trades equated to just shy of USD5 trillion, an increase of 6.6%.

September’s data indicated it was also the second busiest month for CLS in 2016, second only to June’s peak of USD5.19 trillion. The data also showed a 3.7% increase from September 2015, when trading activity totaled USD4.81 trillion.

While the increase mirrors a similar trend observed across many of the major trading platforms last month, CLS’s data provides the most accurate and comprehensive snapshot of activity in a given month – encompassing data from 18 global currencies and approximately 21,000 trading entities around the world.

screen-shot-2016-10-14-at-13-02-09

CLS’s aggregated FX trade data now available

CLS announced it has begun making its FX trade and volume data available via Quandl, an economic and financial data platform.

Subscribers to Quandl will now have access to CLS’s data, which will be delivered on an hourly, daily or monthly basis and aggregated by trade instrument (spot, swap and outright forward) and currency pair.

The currency settlement system, which settles 18 of the world’s most actively-traded currencies, receives an average submission of almost USD 5 trillion every day from banks, asset managers, corporations and hedge funds.

According to David Puth, CEO of CLS, this is the first time CLS has made this level of aggregate data readily available to the market. “It is a key source of trade information that will allow a broad range of users to get a clear picture of FX market activity across major currency pairs and products,” he says.

This view was backed up by Quandl’s co-founder and chief data officer Abraham Thomas, who spoke to trade publication Inside Market Data: “CLS had been aware for some time that it was sitting on a valuable data asset, but didn’t have the distribution infrastructure… or background in monetizing data. They reached out to us a few months ago when they became aware of our data marketplace… especially because our audience includes a bunch of hedge funds and asset managers.”

CLS has historically made aggregated and anonymized data available to the market, but the data made available through Quandl is available in a format more conducive to analysis and with greater frequency.

Customers interested in the data is expected to include large financial institutions, small financial services companies, software companies, academic institutions and research organizations.

Read the news story here.

Daily traded currency values from banks and funds around the globe hit USD 4.96 trillion in April

A surprise from the global currency markets which have been in something of a state of flux of late.

Daily average value submitted to the CLS global settlement system hit USD 4.96 trillion in April, up 5.7% from the previous month, and up 6.9% from the USD 4.64 trillion in April 2015.

Volumes have been below USD 5 trillion a day for most of 2016 so far but the new CLS figures show that April was the busiest month this year.

And this April matters a great deal because the month’s trading activity feeds into Bank of International Settlement’s triennial survey of the foreign exchange market released in September.

The survey is the most holistic picture of global FX market activity, showing detailed activity broken down by trading centres, counterparty types and currency pairs.

The global currency markets remains in a state of flux. Diverging monetary policy, changes in liquidity provision, venue usage and the profile and diversity of trading counterparties are all factors changing the shape of the market.

Take trading venues. Despite the uptick in month on month CLS settlement activity in April, trading volumes actually fell on some of the major trading platforms.

EBS reported USD 82.3 billion last month, which was actually a drop of 15% on the USD 96.9 billion last year recorded in April 2015. It was a similar picture over at Thomson Reuters.

Global FX bounces back to over USD 5 trillion in February

February was a tumultuous time for financial markets, with high volatility influenced by the threat of a potential Brexit and ongoing turmoil in the Chinese economy. 

CLS, the global FX settlement utility has released its settlement data for February showing average daily input value was USD 5 trillion up 3.3% from USD 4.84 trillion in January 2016.

Some FX platforms reported a month-on-month decline in daily spot trading volumes. 

Average daily volumes at EBS were USD 102.6 billion in February 2016, down 1% from the January 2016 reading of USD 103.8 billion.

Read the full report in Reuters

CLS monthly settlement figures, January 2014

 

 

Total Input Volumes1 and Values in January 2014:
• The average daily volume submitted to CLS, combining the settlement and aggregation services, was 1,210,588, up 22.4% from 988,674 in December.
• The average daily value submitted to CLS was US$5.29 trillion, up 8.6% from US$4.87 trillion in December.

 

 

 

 

Input volumes are the number of instructions received by CLS on a given day for future settlement. Input instructions are not necessarily settled during the month in which they were submitted.

 

 

Note: CLS reports both sides of an FX transaction. To adjust the average daily value data to equate to the same reporting convention used by the Bank for International Settlements and the semi-annual foreign exchange committee market reports, the gross values should be divided by two.

 

 

In January 2013, CLS recalculated its monthly data, resulting in non-material changes to volume figures by an average of 0.5%. The data above reflects this calculation.

ITN interview with CLS

ITN interview with CLS for the British Bankers Association

CLS monthly settlement figures, December 2013

CLS Settlement Service and Aggregation Service Data:

 

Monthly Volumes and Values, December 2013

 

Total Input Volumes1 and Values

 

In December 2013:
• The average daily volume submitted to CLS, combining the settlement and aggregation services, was 988,674 down 9.6% from 1,094,020 in November.
• The average daily value submitted to CLS was US$4.87 trillion, down 0.4% from US$4.89 trillion in November.

 

 

 

Input volumes are the number of instructions received by CLS on a given day for future settlement. Input instructions are not necessarily settled during the month in which they were submitted. Note: CLS reports both sides of an FX transaction.

 

To adjust the average daily value data to equate to the same reporting convention used by the Bank for International Settlements and the semi-annual foreign exchange committee market reports, the gross values should be divided by two. In January 2013, CLS recalculated its monthly data, resulting in non-material changes to volume figures by an average of 0.5%. The data above reflects this calculation.

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