FX Volumes Slightly Lower: Surveys

The latest round of FX committee semi-annual turnover surveys indicate that activity globally dipped slightly in October 2017 from the previous April, but was up year-on-year.

The US was the bright point amongst the surveys, showing a 6.2% rise from April 2017’s level and 7.2% higher than the previous October, while the UK, still easily the world’s largest FX market, saw activity decline by 4.3% from April, however it was up 5.4% year-on-year. Elsewhere, all centres saw slightly higher activity from the April 2017 survey, however Singapore and Canada were up on a year-on-year basis while Japan and Australia declined slightly.

Across the six surveys, excluding currency swaps average daily volume (ADV) in all FX products was just under $4.3 trillion, down from $4.35 trillion in April but up from $4.1 trillion the previous year. FX swaps remains the biggest market in FX, the six committees reporting ADV of $1.95 trillion, slightly down from April $2 trillion but up from the previous October’s $1.81 trillion.

Elsewhere spot activity was $1.34 trillion per day, a fraction up year-on-year (less than 0.5%), but down 1.9% from April; outright forwards (including NDFs) was down both from the previous October (by 3.6%) and April 2017 (by 1.7%), while FX options activity was $229.3 billion, up both from April (3.3%) and year-on-year (4.5%).

As noted the UK remains the biggest centre by some distance. In October ADV in spot FX was $677 billion, down from $722 billion in April and from $692 billion in October 2016. FX swaps ADV was $1.132 trillion, down from $1.166 trillion in April but up from $1.024 trillion in October 2016; and FX options volume was $129 billion, down from $140 billion in April and $135 billion in October 2016.

There was a strange shift in the numbers for outright forwards and NDFs (non-deliverable forwards) in the UK data, for while in October 2016 ($230 billion per day) and April 2017 ($254 billion) outright forward volumes outstripped NDFs ($62 billion and $78 billion respectively), this was totally reversed in the latest data for October 2017, during which month the UK FX Joint Standing Committee says outright forward volume was just $90 billion, while NDFs ADV was $233 billion.

Although at face value the switch seems strange it could partly be a reflection of the growing importance of the Chinese renmimbi, which has now risen to eighth in the most active currencies traded in the UK with 2.8% of (double counted) turnover.

In the US, the New York Foreign Exchange Committee reported ADV of $944.25 billion, up 6.2% from April 2017 and 7.2% from the previous October. Spot FX is still the largest market and saw $397.7 billion per day in October ($375.4 billion in April and $375.2 billion in October 2016), while outright forwards ADV was $202 billion, up 6.8% from April and 9.9% higher than the previous October.

It was a similar picture with FX swaps at $302.4 billion per day, this was 4.9% up from April and 6.6% up year-on-year; meanwhile FX options activity was $42.2 billion, up 12.5% from April and 5% from the previous October.

In the US, spot activity was most markedly higher with Other Dealers, up over 15% from the previous two surveys. Although the FXC does not provide a breakdown of the categories, this could be a reflection of the rise of the non-bank firms, both directly and with their relationships with regional, or non-reporting banks. ADV with Other Financial Institutions, typically hedge funds, was up 3%, while Non-Financial Institutions saw activity rise by 9% in spot terms. The only area to see a decline in spot FX activity was that between Reporting Dealers, the category is largely made up of the largest local banks.

Activity in the US in other products was largely higher with all categories of counterparty, the only interesting aspect being a shift in FX options, where activity with Other Dealers rose 66.6% and 28.2% with Other Financial Institutions, but collapsed by almost three times with Non-Financial Institutions. This shift could signal customers going to more regional banks with their options requirements at the expense of the major houses.

The Canadian Foreign Exchange Committee report signals overall ADV up 1% from April and 13.4% year-on-year to $80.6 billion per day. Spot ADV was $17.9 billion, up fro $17 billion in April and $15.8 billion the previous October, while outright forwards declined to $13.6 billion from $14.9 billion in April (but was up from $11.8 billion the previous October), and FX swaps activity was also slightly higher at $49 billion, a 2.2% increase from six months previous and up 13.2% year-on-year. FX options activity in Canada showed a gentle increase to $3.5 billion per day in October, up from $3.4 billion in April and $3.3 billion in October 2016.

Asia Drifts Lower

Meanwhile across Asia activity declined between the April and October 2017 surveys, but the news, while mixed, was better on a year-on-year basis.

Singapore remains the largest Asia centre and handled $483.9 billion per day in October, down 3.5% from April, but 0.5% higher year-on-year. Spot activity declined to $108.4 billion (-5.3% from April, unchanged year-on-year), while outright forwards trading was also down to $66.8 billion per day (from $73.9 billion in April) but up (from $65.1 billion) year-on-year. FX swaps remains Singapore’s biggest market, activity fell here also, however, to $223.3 billion in October from $234.9 billion in April. It was significantly up from October 2016’s $173.6 billion, however.

FX options (+30.4%) activity rose strongly to $46 billion in the latest survey, up from $32 billion in April and $30.4 billion in October 2016 – there was also a significant increase in activity in currency swaps in Singapore, ADV rising to $53.2 billion from $46 billion in April and $43.8 billion in October 2016.

The survey taken by the Tokyo Foreign Exchange Committee indicates that ADV in Japan was $350.1 billion in October 2017, down slightly from April $353.2 billion but a steeper drop from October 2016’s $386.3 billion.

In Japan spot activity was broadly steady, with ADV of $109.4 billion in the latest survey (one of the few times in recent years Tokyo has handled more spot that Singapore), up from $109.2 billion in April and from $106.2 billion in October 2016. Much of the overall decline in activity in Japan was in outright forwards at $47 billion (down from $52.3 billion and $65.1 billion in April 2017 and October 2016 respectively) and FX swaps at $178.2 billion ($180.7 billion and $203.3 billion).

FX options activity in Japan continues a steady decline, registering $7.4 billion per day, from $7.9 billion in April and $9.7 billion in October 2016. There was, however, a sharp rise in currency swap activity, in the latest survey $8.1 billion per day went through Japan, up from just $3.1 billion in the previous survey and $2.7 billion the year before.

Finally in Asia, the Australian Foreign Exchange Committee reports ADV of $111.3 billion, down from $125.7 billion in April and $121.3 billion in October 2016. The majority of the decline was accounted for in FX swaps – perhaps a further reflection of very stable local monetary conditions – where activity was $69.9 billion in the latest survey, down from $83.6 billion in April and $80.7 billion the previous October.

Spot FX ADV was $28.5 billion in October 2017, up 5.6% from April and 10% from October 2016, while outright forward activity was broadly unchanged year-on-year at $9.5 billion, but down 15.2% from April. FX options activity in Australia was unchanged from April at $1.2 billion (up from $900 million in October 2016), while currency swaps activity declined to $2.1 billion per day in October 2017, down from $2.8 billion in April and $3.5 billion the year before.

Mixed PB News

The latest turnover surveys offer mixed news for the prime brokerage business for while numbers remain at good levels, in several areas the percentage of volume through PB declined.

A global picture is unavailable as the various FX committees still report their data in different fashions, but in the UK and US prime brokerage volumes are reported. In the US PB still dominates the spot market, with 71.4% of volume going through a prime broker. This is, however, down from 72.7% in April and 72.5% in October 2016.

It is a different picture in outright forwards (of which approximately one quarter of US activity is actually NDFs) where prime brokers handle 36.3% of flow – again this is down from 37.7% in both April and the previous October.

There is better news for prime brokers in FX swaps – although it could be argued that due to the increased credit and balance sheet burden this may not be the most welcome development – where PBs handled 17.4% of volume, up from 13.8% in April and 12.4% in October 2016.

The picture was a little more mixed in FX options, where PBs handled 29.7% of flow, up year-on-year from 22.5% but down from April’s 35.4%.

It was a similar picture in the UK survey, where prime brokers handled 42% of spot volume, down from 45.7% in April and 42.8% in October 2016. In NDFs PBs had a 23.6% share, down from 28.2% and 32.9% in April 2017 and October 2016 respectively), while in outright forwards it was 27.8%, up from 25.1% in April and 26.3% in October 2016.

As was the case in the US, the UK is seeing more swaps and options volume executed using prime brokers – 8% on swap activity was prime broked (unchanged from April but up from 5.5% the previous October), while 45.4% of FX options volume was handled by a PB, from 39.1% in April and 37.6% in October 2016.


Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

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