Continued Shift to Electronic Execution Consolidating Trading Business with Biggest Dealers
2014 Greenwich Quality and Share Leaders Among Corporates and Financials, and in the Americas, Europe and Asia
Deutsche Bank, UBS, Citi, and Barclays are tightening their grip on the foreign exchange market as global FX continues its transition to a primarily electronic marketplace, according to a new report from Greenwich Associates.
These banks—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 Deutsche Bank, UBS, Citi, and Barclays, along with number-five ranked J.P. Morgan, the title of 2014 Greenwich Share Leaders in Global Top-Tier Foreign Exchange Services.
Drivers of Market Share: Quality and Electronic Capabilities
This year, 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 increase in trading activity among financial institutions (+18%), which in turn was powered by a 41% increase in trading volumes generated by retail aggregators.
As their overall trading activity levels increased, financial institutions 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,” says 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.”
Notably, hedge funds are sizable users of single-dealer platforms and they are expecting to increase their use of these in the coming year.
2014 Greenwich Share Leaders
The list of 2014 Greenwich Share Leaders in Global Top-Tier Foreign Exchange Services consists of Deutsche Bank and UBS, which are tied atop the market with market shares between 12.0% and 12.5%, followed by Citi at 11.7%, Barclays at 10.5% and J.P. Morgan at 6.2%.
Deutsche Bank and Citi lead the list of 2014 Greenwich Share Leaders among global top-tier corporates with equal market shares of approximately 9.0%, followed by HSBC, J.P. Morgan, Barclays, and RBS.
The 2014 Greenwich Share Leaders among global top-tier financials are UBS and Deutsche Bank at 13.1%–13.4%, Citi at 12.2%, Barclays at 11.2%, and J.P. Morgan at 6.2%.
2014 Greenwich Quality Leaders
The 2014 Greenwich Quality Leaders in Global Foreign Exchange Services, Citi and Deutsche Bank, earned that title by receiving quality ratings from clients that exceed those of competitors in multiple markets and market segments around the world. Citi is the 2014 Quality Leader among global top-tier corporates; while Deutsche Bank takes the honor among global top-tier financials.