Four banks – Deutsche Bank, UBS, Citi, and Barclays – are tightening their grip on the foreign exchange (FX) market as global FX continues its transition to a primarily electronic marketplace, according to a report from Greenwich Associates.
The financial advisory firm says that the quartet – the top four dealers in FX – together captured an impressive 46.7% of global top-tier customer trading volume in 2013, an aggregate share that has grown by six percentage points since 2012.
The dominance of these banks is even greater in certain regional markets. In the top-tier United States, these four dealers claimed an aggregate market share of close to 53% in 2013, up from about 42% in 2012. This performance earned the four banks, along with fifth-ranked JP Morgan, the title of
‘2014 Greenwich Share Leaders in Global Top-Tier Foreign Exchange Services’
Greenwich reports that two important drivers of market share are service quality and the increased use of electronic trading by market participants. Global FX trading volume increased by approximately 14% last year, with strong growth recorded in continental Europe and Japan. Worldwide growth was driven largely by an 18% increase in trading activity among financial institutions (FIs), which in turn was powered by a 41% increase in trading volumes generated by retail aggregators.
As their overall trading activity levels increased, FIs as a whole increased the share of their trading volumes executed electronically by three percentage points to 77%, and retail aggregators upped the share of their own business done through electronic systems to 98% from 93%. “Due largely to these shifts, nearly three-quarters of global FX trading volume (74%) was executed electronically last year, up from 71% in 2012,” said Greenwich Associates consultant Woody Canaday.
The biggest beneficiaries of this shift are banks with the best electronic trading platforms. “In general, it is the biggest banks that are able to afford the sizable investments needed to build, deploy and maintain these sophisticated platforms,” says Greenwich Associates consultant Peter D’Amario.
“Looking at the direction of the market and the increasing influence of retail aggregators and high-frequency traders, it’s likely that this arms race will only intensify.”
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