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Turnover Surveys Reveal Scale of Yen “Bounce”

The world’s FX committees have released the latest semi-annual turnover surveys, for October 2013, which show a sharp decline in activity from April 2013, thus confirming suspicions that the latter month was unduly influenced by a spike in yen trading (Squawkbox, July 29, 2013). 

Overall activity across the six centres to report dropped 12.1% to $3.99 trillion per day from the April 2013 surveys, and the reality is the drop was actually more dramatic because the Tokyo Foreign Exchange Committee (TFXC) changed its methodology slightly so direct inter-temporal comparisons are impossible.

In the UK, activity dropped 12.3% from $2.55 trillion per day in April to $2.23 trillion in October; the US saw a 19% decline to $816.3 billion per day; Singapore fell by 12.3% to $343.6 billion; Australia by 7.2% to $168.6 billion and Canada by 14.8% to $52.3 billion. Only Tokyo bucked the trend, due mostly to the aforementioned changed methodology, rising 7.1% from April to $372.7 billion.

The decline was even more marked in spot markets where activity across the centres fell 21.9%, led by the US (25.5% lower from April) and the UK (-23.8%). All centres were lower across the survey period, Australia by 19.1%, Tokyo by 16.5%, Singapore by 12.2% and Canada by 6.7%.

A better temporal comparison is probably made by looking at the year-on-year data, as extreme volatility in the yen, which fell more than 10% in the first two weeks of the April survey period, undoubtedly means that month is an outlier. As an example, average daily turnover in yen in the UK fell by 37.2% and in North America by 38.5% – notionally over $300 billion per day disappeared between April and October.

Year-on-year data shows that the yen is still much busier than it was in October 2012, however, as activity in the UK is 29% up over that period and 20% higher in North America.

Looking across the centres on a year-on-year basis the data returns to what could be termed “normal” with more steady growth. Tokyo rose by an impressive 24%, the UK saw activity rise by 10.8%, North America rose a more sedate 2.9% (Canada was +3.7% within that), and Singapore (-4.9%) and Australia (-9.3%) saw activity decline.

On the spot front, Tokyo was up 38.5% and Canada saw increased spot activity of 19.8% otherwise the changes were more moderate. The UK was 5.1% higher, North America 1.8% up, while Australia (-8.1%) and Singapore (-3.1%) were again lower.

In terms of electronic trading the data from the UK and US shows declining e-ratios mainly driven by a slump in the share of activity held by electronic broking systems. In the UK 41.8% of FX business was electronic, down from 44.7% in April 2013 and 47.3% in October 2012.

In the US the FX e-ratio is 52.7%, down from 56.3% in April. The FXC changed how it allocated electronic broking systems’ volume for the April 2013 survey so a year-on-year comparison is impossible.

On the spot side of the business it was a similar picture: 58.4% of spot in the UK is electronic, down from 62.0% in April and 66.2% the year before. In the US 61.8% of spot was ‘e’, down from 67% in April.

Across the medians, as noted, electronic broking systems continue to decline in influence. In the UK this channel saw its share of the spot market in October 2013 fall to 24.8%, down from 33.1% in April and 38.9% in October 2012. Although less important to these businesses, which remain dominated by spot, broking systems saw reduced market share in FX swaps and FX options, but recovered slightly from a sharp dip in April 2013 in NDFs.

It is a similar picture in the FXC survey, where broking systems’ share of spot fell to 14.5% from 22.1%.

In the UK, multi-dealer platforms saw an increase in market share. While this may be the result of reporting banks allocating volume to multi-dealer/electronic trading systems where it should be broking systems, more likely this trend reinforces the belief that the relationship/disclosed model is gaining serious traction at the expense of the anonymous model. Single dealer platforms in the UK survey have held market share steady in most products.

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