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Inaugural FX Surveys Show Dip in Turnover

The New York Foreign Exchange Committee (FXC) and the UK’s Foreign Exchange Joint Standing Committee (JSC) have released details of their inaugural semi-annual FX volume survey. Conducted in October 2004, the survey will be taken every six months to provide the market with frequent information on the size and structure of the FX markets in both the UK and US.

Although comparisons with the Bank for International Settlements’ (BIS) Triennial Survey of FX Turnover (which was last published in September 2004 for the April 2004 period) are inevitable, there is one significant difference in how the data is collated in the FXC and JSC surveys. As used to be the case with the BIS survey, the committees’ surveys measure data according to where the dealing desk is and not, as the BIS did in 2004, according to where the sales relationship is based.

The FXC survey shows average daily volume in October 2004 of $335.4 billion. Of this, $168.4 billion was spot turnover, $49 billion outright and $118 billion FX swaps; OTC FX option turnover was measured at $36 billion.

The JSC survey showed overall FX turnover of $587 billion per day, $207 billion in spot, $40 billion in outrights, $335 billion in FX swaps, and $5 billion in currency swaps. It also reports $70 billion average daily turnover in FX options.

Both surveys indicate a slight dropping off in average daily FX turnover from the BIS’s April 2004 triennial survey. Whilst taking on board the committees’ warnings regarding comparisons with the BIS survey, a general judgement can be made. Typically in the FX industry it is the sales function that is diffused rather than the trading function and as such, it can be argued that the BIS survey would understate a centre’s turnover. That being the case, both centres’ turnover is slightly down – the US from $461 billion (as measured by the BIS) and the UK from $753 billion.

A fair comparison can be made with the 2001 BIS survey, which collated data in the same fashion as the committees, and here the renewed growth of the FX industry can be confirmed. In 2001, the US registered $254 billion per day average and the UK, $501 billion.

The FXC survey indicates a drop in spot FX turnover from the BIS survey. The FXC measures $168.4 billion compared to $217.3 billion in April 2004; this picture was repeated in the other market segments, where FX swaps turnover was $118 billion in October 2004, compared to $182.9 billion in April; and outrights which registered $49 billion in October from April’s $61.1 billion.

Interestingly, in the JSC data, turnover in the spot market held up quite well, registering $207 billion in October, compared to $222 billion in April. The decline was felt in the forward markets, where outright turnover registered $40 billion per day (compared to April’s $103 billion) and FX swaps $335 billion ($428 billion). OTC option turnover in the UK was steady, registering $75 billion in October, compared to $80 billion in April.

Both committees invited 31 financial institutions to participate in the survey, although the lists differed slightly according to different banks’ regional strategies. While this number is fewer than participated in the BIS survey fore each respective country – which may explain why the data shows a slight decline – the 31 institutions included by both represent the bulk of the FX market in terms of volume transacted.

"Our goal in launching this survey is to help market participants identify emerging trends in foreign exchange," says Mark Snyder, chair of the FXC. "Moreover, we hope that this information will enable market participants to measure and effectively manage the risks associated with this high volume and rapidly evolving industry."

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