Single-Dealer Platforms to See Short-Term Volume Boost, SEF Compliance Demands Will Trigger Consolidation

In a new report released today, U.S. Regulations May Slow Shift to FX Multi-Dealer Platforms, Greenwich Associates concludes new derivatives rules could push more FX trading volumes back to single-dealer trading systems and may eventually trigger consolidation among multi-dealer platforms.

Global trading volume on multi-dealer platforms climbed to 44% last year up from 38% in 2007 as single-dealer volume held relatively steady over the same period and dipped 2 percentage points to 13% in 2012.  Currently, the biggest beneficiaries of this shift among institutional and corporate FX market participants are FXall with 29% market penetration, 360T with 18% and Bloomberg with 17%.

New Rules Give Temporary Boost to Single Dealer Platforms
Regulations requiring multi-dealer platforms to register as SEFs may drive more trading volume to single-dealer platforms in the near term as clients look to minimize the impact of new regulations on their trading process.

Greenwich Associates projects FX trading on single-dealer platforms to remain steady or grow slightly in the next 6–12 months, especially among financials, who are already the heaviest users of these systems. “The good news for multi-dealer platforms is that we see this shift as a transitory phenomenon,” says Greenwich Associates Head of Market Structure and Technology Advisory Service Kevin McPartland.  “In the long term, the move to multi-dealer platforms will resume.”

Consolidation Ahead?
The resurgence of  multi-dealer platform volume may be spread over fewer players and Greenwich Associates believes the regulatory burdens and other demands of operating a SEF will trigger the consolidation of multi-dealer platforms, especially those operated by a single parent company.