A notable figure in this year’s Bank for International Settlements (BIS) survey of FX turnover highlights the increasingly important role of firms like retail aggregators in the FX market.

While in the 2016 survey the “Other” category of the Other Financial Institutions segment of the report (this is largely the retail aggregator/prime-of-prime sector) was responsible for 3.7% of turnover, in the latest survey it has a 7.9% share, of a much bigger pie. In hard numbers, this segment was responsible for $191 billion per day in 2016 – this year it is $524 billion. To put this into perspective, hedge funds and prop trading firms (PTFs) trade $593 billion per day.

Elsewhere in terms of client engagement, the biggest client segment remains Non-Reporting Banks with $1.6 trillion per day (24.5% of all activity), followed by Institutional Investors at $777 billion (11.8%) and hedge funds/prop trading firms at 9%. Interestingly, while Institutional Investors’ share of activity dropped both in notional (by $21 billion per day) and percentage (from 15.7% in 2016), the share of Non-Reporting Banks (up 2.5%) and Hedge Funds/PTFs (up 1.4%) both rose.

Trading between Reporting Dealers fell from 42% to 38.5% in the latest report and the share of Non-Financial Institutions fell to 7.2% from 7.5%.

Across the product sets, spot activity largely reflected the broader trend with the share of activity of Institutional Investors falling to 15.5% (from 17.5%), while those of Non-Reporting Banks at 22.5% (21.4%), Hedge Funds/PTFs at 13.1% (12.1%) and the Others at 10% (4.3%) all rose. The latter segment now trades $200 billion worth of spot every day.

Unsurprisingly there was a drop in the Reporting Dealers share of the market in spot, to 29.8% from 36.7%, however Non-Financial Institutions did trade more, grabbing an 8% share of activity, up from 7.1% in 2016.

The rise of Others is also reflected in outright forwards, where the segment trades $99 billion per day for a 9.9% share, in FX swaps it now trades $187 billion per day (this will largely be the rolling of positions in the short dates) for a 5.8% share, up from 3.2%, while in FX options activity grew to $33 billion from $22.8 billion for a 11.2% share of activity, up from 5.5%.

Elsewhere the broader pattern is reflected, with Institutional Investors trading less FX in all product sets – with its market share in outright forwards being down 2.9% to 21.5% in outrights; down 5.1% in FX swaps to 6.6% and down a massive 8.3% in FX options to 11.2%.

Trading with Non-Reporting Banks rose in all categories apart from outright forwards, and with Hedge Funds/PTFs it rose across all products. Non-Financial Customers had a larger market share of outright forwards, however it fell in FX swaps and FX options.

Another significant data point in the survey is the rise of prime brokerage – in all FX products 22.6% of activity was prime brokered, up from 17.4% in 2016, more specifically in spot $918 billion per day or 46.2% was prime brokered (up from $564 billion and 34.1% in 2016); $252 billion or 25.2% of activity in outright forwards was PB-ed ($119 billion and 17%); $218 billion or 6.8% of FX swaps business ($143 billion and 6%); and $100 billion of FX options activity or 34% ($58 billion and 22.8%).

Again highlighting the influence of the retail aggregators, trading with retail-orientated counterparties on a direct basis actually fell sharply to $201 billion per day, or 3% of activity, from $282 billion and 5.5% in 2016. Spot activity actually rose slightly to $66 billion from $60 billion per day, however as share of activity it fell to 3.3% from 3.6% – it was the same story with FX options where volume was $25 billion per day from $19 billion in 2016 (the share also rose to 8.5% from 7.5%). In outright forwards and FX swaps, however, activity with retail clients dropped to $13 billion (from $22 billion) and $97 billion ($178 billion) respectively.

Colin Lambert

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