FX turnover is down, but not by as much as some expected. Why?
So the latest Bank for International Settlements (BIS) Triennial Central Bank Survey is out and, as Profit & Loss previously reported, the headline figure is that the FX market has contracted in size from $5.3 trillion to $5.1 trillion traded per day over the past three years.
This news seems to have caught very few people by surprise, however the survey shows spot foreign exchange volumes are lower while FX swaps activity has grown considerably, especially in Asian centres and in the yen.
Just about 10 months ago the deal was announced to sell Icap’s voice business to Tullett Prebon and at that time, in this column, I suggested that a consequence of that deal would be an easier path for anyone looking to buy Icap’s electronic business, subsequently revealed to be named Nex.
Obviously I cited an exchange as the most likely buyer and it seems, if the headlines of last week are anything to go by, that the pieces are being moved into place. Moving pieces is, however, very different to an actual deal – what are the chances of that?
A new paper published by the Bank for International Settlements (BIS) asks the question, what would balance sheets look like if the borrowing through FX swaps and forwards were recorded on-balance sheet, as the functionally equivalent repo debt is?
The authors of the report, FX Swaps and Forwards: Missing Global Debt? observe that these products “create debt-like obligations” and state that non-banks outside the US owe large sums of dollars off-balance sheet through these instruments. They add that the total is of a size similar to, and probably exceeding, the $10.7 trillion of on-balance sheet dollar debt.
Plenty of things surprise me in life; West Ham, the New York Giants and the Montreal Canadiens actually winning; Cable going up; the people we elect as our leaders – the list is endless.
One line on the list continues to puzzle and intrigue me in equal measure – why have we still to make significant progress on automating the trading of FX swaps? Am I the only one who sees the time for CLOB in FX swaps as being now?
Those of us, me especially, who have been waiting for the e-revolution in FX to hit the swaps markets may have reason for optimism today, although actual hard evidence through results may have to wait quite a bit longer. CME's new FX Link launched this morning in Asia, without much fanfare it has to be said, but launch it did - and it could be the start of a market structure change that we e-FX swaps proponents have been expecting.
Data released by Thomson Reuters shows that average daily volume (ADV) in spot FX across its venues rose by just under 2% in June from the previous month. This is in contrast to the other platforms to report volume data, with the exception of FXSpotStream, which also saw a month-on-month increase.
At $109 billion per day, Thomson Reuters’ spot volume in June was the second highest reported since February 2016 – it also represents, as was the case with the other platforms, a hefty year-on-year increase, in this case 10.1%.
Deutsche Börse Market Data + Services and the exchange group’s FX trading venue 360T are launching a product offering covering FX spot market as well as FX swap market data. The swap market information is based on a contribution model of liquidity providers developed in cooperation with the Germany-based company Digitec. The Market Data + Services group will act as licensor of the new offering and the data is available via the data feed of Deutsche Börse as well as via 360T’s streaming FIX API as “Swap Data Feed” SDF.
It was 10 years ago yesterday that one of the more higher profile ventures of recent years in the FX space shut its doors in that October 17 2008 was the last day of trading for FXMarketSpace.
There have been times in the past five years when people in the industry – and I have to stress they did not work for FXMS at any time – have told me they thought the centrally-cleared, anonymous model would have been ideal for the current environment.
“I have a great idea,” said P&L’s managing editor Colin Lambert. “Let’s record the podcast by the pool…”
Yes, we are back on the road again with this week’s podcast recorded in Hong Kong on the sidelines of the Profit & Loss conference there and thankfully our audio engineers managed to alleviate the worst impact from Lambert’s “clever” suggestion.
So listen in as regular podcasters Lambert and P&L editor Galen Stops are joined by returning guest John Ashworth, CEO of Caplin, who immediately “owns” them by dropping a fantastic Hong Kong fact into the conversation very early.
Topics include a discussion about a very eye-opening chat at the start of the conference which looked at the chaos in Washington DC, the evolution of AI and Fintech and the differing attitudes to crypto markets in Asia and the US.
The podcast also includes Lambert’s observations on some very interesting answers to his questions on the future of the FX swaps market during the liquidity panel, however this week’s edition does come with a warning as it closes out by providing an image that some listeners may find disturbing!