A recap of the industry news in the last week Global
Five top FX dealers see market share slip
Although the top five dealers – Citi, Deutsche Bank, UBS, Barclays, and J.P. Morgan – in global foreign exchange trading still dominate the arena, they have slightly lost their grip, according to a new report from Greenwich – Top FX Dealers Still Dominate but Cede Market Share to the Middle. It may not seem like much but the two percentage slippage from 53% in 2013 to 51% last year can make a dent in a market measured in the hundreds of trillions.
The report which surveyed 1,612 top-tier users of global foreign exchange, found that firms ranked at the bottom part of the top ten had increased their market share to 24% from 22% while dealers outside the big leagues inched ahead in aggregate from 14% to 15%.
Technology was seen as the key driver with around three-quarters of client volume in FX being conducted electronically, a ratio that has risen consistently since before the financial crisis. The movement of trading business to multi-dealer electronic platforms has also broadened the market. In addition, buy-side clients are increasing the number of brokers they use to over eight in 2014 from 6.5 as recently as 2009. This level of counterparty expansion would not have been possible in a purely bilateral market.
Nomura withdraws from CCP clearing
Nomura is the latest in an increasingly long line of players that have withdrawn from the clearing business in the US and Europe due to regulation and higher capital costs.
The bank which will continue to offer the service in Japan joins banks such as State Street, BNY Mellon and Royal Bank of Scotland who have retreated over the past 18 months while other firms have scaled back by limiting the number of new clients they accept.
Nomura though is not pulling out of derivatives and the focus will not move to the execution side of the business. The changing landscape means that the business is consolidating into fewer hands.
Sources:
http://www.ft.com/cms/s/0/e1883676-f896-11e4-be00-00144feab7de.html?siteedition=uk#axzz3a0Dq5xd0
Swap markets to become crowded
Competition is set to intensify in the swaps futures markets next month. The Intercontinental Exchange (ICE) is set to trade euro-denominated interest rate swap futures in five tenors of between two and 10 years while UK fledgling trading platform Global Markets Exchange Group (GMEX) plans to launch its own branded product.
US based ICE has licensed the methodology underlying the products from Eris Exchange, a domestic exchange start-up that it also used to launch its US credit default swap futures in March. GMEX, which, is backed by Deutsche Börse and Societe Generale, is to offer an interest rate swap future that is priced using a proprietary benchmark known as the Constant Maturity Index.
Established players in the US are CME and Eris Exchange while Europe has Deutsche Börse and the CME. To date, demand has been limited although these products are expected to become increasingly popular as G20-led regulations force vast swathes of the OTC market through exchanges and clearing houses to reduce risk, adding costs to OTC products. Tougher capital rules for banks are also expected to drive demand for such contracts, as they employ less collateral.
Source: http://www.efinancialnews.com/story/2015-05-06/ice-gmex-poised-to-enter-swap-futures-battle
Europe
BIS looks to create a global code of conduct
The Bank for International Settlements (BIS) has created a working group to establish a global code of conduct for the foreign exchange market. The harmonisation effort will be headed by Reserve Bank of Australia Assistant Governor Guy Debelle, the co-author of recommendations established last year for reforming benchmarks in the wake of the alleged manipulation of the benchmarks two years ago.
The main reason is that a global code could help prevent future abuses due to the traditional divisions between the biggest banks and financial centres such as Tokyo, London and New York in a market that has never been formally regulated.
The push for a single set of standards is likely to be shaped by Britain’s Fair and Effective Markets Review of conduct in currency and other markets, which is due to report in June and will need international backing to have any global impact.
Source: http://uk.reuters.com/article/2015/05/11/forex-codes-idUKL5N0Y22QS20150511
