Less Volume, but More Automation

Data from the UK’s FX Joint Standing Committee (JSC) shows
that while overall volumes dropped, e-ratios in spot and across the broader
market both rose from April. Meanwhile in the US survey spot e-ratios dipped
slightly, as they did across all FX products.

The JSC survey suggests the UK market had a spot e-ratio of
62.2%, the highest registered since the October 2012 survey. This is a
significant increase on the 57.9% highlighted in the April 2016 survey  and the 54.5% ratio in October 2015.

In a slight reversal of the longer term trend electronic
broking systems as a broad category saw an increase in its ratio of volume, up
to 22.2% of spot business from 20.9% in April. Single dealer platforms also saw
an increase, from 13.4% of spot volume to 13.8%, while the multi-dealer
platforms saw their collective share rise strongly to 26.25% from 23.6%.

The increased share of volume held by electronic channels
was at the expense of the Customer Direct category, which saw its share of
volume drop from 24% to 17.7%. Interestingly, in another reversal of a longer
term trend (or perhaps an outlier) the share of spot volume held by reporting
dealers actually rose, from 15.2% to 16.8%

In the US survey, meanwhile, although the spot e-ratio
dropped slightly, it remains at historical highs at 67.1%, down from 69.6% in
April, but well above the longer term average around the 60% mark.

The two surveys allocate volume in different fashion, the US
copying the BIS style of voice and electronic sub-divided into direct and
indirect categories. From April to October 2016 in the US, the share of spot
trading held by the various channels was broadly stable with single dealer
platforms grabbing a 16.9% share (from 16.8% in April); other channels, largely
aggregation and API connectivity, handled 32.5% of spot volume (down from 33.9%
in April); Thomson Reuters Matching and EBS handled 8.3% (7.6%); while other
ECNs handled 5.9% of US spot volume (down from 7% in April).

In terms of e-ratios across all FX products, in the UK the
channels were also broadly stable, with electronic broking systems handling
18.7% (from 18.6% in April); single dealer platforms 16.5% (13.4%) and
multi-dealer platforms 17.5% (15.1%).

In the US single dealer platforms saw their collective share
rise to 18.3% from 17.7%, while other direct sources dropped from 24.4% to
23.6%. Thomson Reuters Matching and EBS had a 5.9% share of all volume, down
from 7.6%, while other ECNs saw their share rise slightly to 7.4% from 7%.

The Tokyo Foreign Exchange Committee also provides high level data on execution methods, these data show that the overall e-ratio in Japan rose slightly, with financial institutions executing 42.6% of their volume electronically (up from 41.6%), while non-financial customers’ e-ratio fell slightly from 58% to 57.8% in October.

Looking at data published by the major dealing platforms,
compared to the 7.1% decline in spot volume across the six surveys, EBS saw a
0.6% decline; CME volume was up 9.8%; Thomson Reuters fell 2%; FXSpotStream
dropped 5%; FastMatch rose 25.9%; Hotspot fell 1.1%; while Gain GTX rose 11.5%

Colin_lambert@profit-loss.com

Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

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