Big Banking Companies Dominate Currency Trading

CFOs may find themselves increasingly forced to route currency trades to the biggest players if the current competitive landscape in currency trading does not shift, a recent research report indicated.

Because of the complexities of conducting FX trades, amid an environment of high technology investment and low volatility and volume, only about five banking companies have become the dominant players, according to a report titled "Biggest FX Dealers Amassing Dominant Market Share," published by Greenwich Associates last week.

The five largest FX dealers by market share are Deutsche Bank, UBS, Citi, Barclays and JPMorgan, Greenwich Associates reported Oct. 16. Last year, these banking companies were responsible for over half (53 percent) of global trading volume, and that reflects a market share that has been steadily increasing over the last several years, the research firm noted.

In 2012, these top banks captured 48% of the market, and in 2011, 45%. In 2005, the top five dealers were responsible for just 39% of global trading volume, Greenwich Associates noted in its report.

"Several factors are contributing to the growing market share of the top dealers, including higher costs of capital, increasing incentives to clear, the breakdown of the traditional fixing process, and the expanding use of technology," Kevin McPartland, head of research for market structure and technology at Greenwich Associates, wrote in a press release.

"The increasing concentration of trading business with the top dealers is putting tremendous pressure on the rest of the market," McPartland noted in his report.

Greenwich Associates' research report also predicted that this situation is likely to remain the case for at least the next six months to a year, until the currency market sees more volatility and volume.

"The main trends driving business to the largest dealers—growth in electronic trading, increases in capital costs, growing incentives to clear—will remain in place over the short term and Greenwich Associates expects this concentration of FX trading to continue for at least the next 6–12 months."
 

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