E-Ratios Rise, Channels Change in FX Turnover Data

Data from the latest UK and US FX committee turnover surveys indicate that customers went through disclosed channels in April 2020, however dealers internalised less risk.

The UK’s FX Joint Standing Committee report has one enigma – a change in the report that has seen the share of the multi-dealer platforms in spot trading apparently collapse. The data indicate that the MDP share of spot turnover in the UK fell from 28.2% of activity in 2018 to just 10% in April 2020 – in notional terms that is from the $250 billion to just $77.4 billion. Conversely, single dealer platforms received a boost, grabbing 21.1% of turnover ($163.6 billion) from 15% in April 2018 ($131 billion).

Although a significant change, the ratios are broadly unchanged compared to April and October 2019, the former data being revised down from $245 billion to just $102 billion, this reinforces the suggestion that a change in reporting style may be responsible, with the disclosed aggregation channel possibly now being included in the SDP data. The percentage of volumes executed by customers direct with the dealers also rose, to 16% of spot activity from 13% the previous year.

There was also a strong rise in the share of the electronic broking platforms on an annual basis, with this channel being responsible for 34.5% of spot activity compared to 22.9% the previous year. This is consistent with dealers internalising less risk during the nervous market conditions that prevailed throughout much of the survey month.

In non-spot products it was a similar picture in the UK, the customer director channel grabbing 17% of turnover, up from 14.3% the previous April, while the MDPs’ share fell to 10% from 14.9% and the SDPs’ rose to 9% from 6.7%. Electronic broking systems’ share of non-spot activity was 16.8%, slightly higher than 16.2% in April 2019, while the voice broking channel – still important away from spot markets – had a 22.8% share, up from 22.4% the previous year.

The overall e-ratio in the UK’s FX market rose slightly to 65.5% from 65.2% in April 2019.

In the US – the only other FX committee to report execution channel data in any detail – it was, like the overall survey, a different picture. In spot markets, the share of the electronic broking channels fell to 15.3% from 16.8% in April 2019, while the SDP channel rose to 7.4% from 6.8%. In contrast to the UK report, the “other” channel, which includes MDPs, rose to 39.1% from 34.1%. This channel is understood to include aggregation channels, hence the different outcome.

The New York Foreign Exchange Committee report also indicates that the voice direct channel declined in spot markets, from 32.9% to 29% as customers went online. The overall e-ratio rose strongly to 64.2% from 59.1% in the US. Broadly speaking the different channels’ share was unchanged in non-spot products – broking systems at 22% (from 21.2% in April 2019); MDPs at 19.8% (from 18.4%) and SDPs 10.4% (from 13.6%). Again the voice direct channel saw a decline in the US, to 17.9% from 22.3%.

Overall, the increase in the e-channel in the UK report is slightly below what was expected given the anecdotal evidence during the pandemic’s height – by contrast the US increase is in line – however it should be noted that the JSC also has a “customer direct” channel which could be construed by some as including electronic and voice volumes. In longer trend terms, the April reports on execution channels have few dramatic shifts, suggesting the industry had already began to settle down during the survey month after the mayhem of March.

Colin Lambert

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