Banks losing FX market share to non-bank liquidity providers – survey

The success of non-bank FX liquidity providers such as XTX Markets and the loss of combined market share of the top five banks are two trends highlighted in this year's Euromoney FX survey.

The bank with the biggest foreign exchange (FX) market share is Citi, which maintains its top ranking with 12.91 per cent of the market, according to Euromoney's 2016 FX survey. There are some changes in the top five though, with Barclays (third last year) dropping to sixth place this year, and last year's number two (Deutsche Bank) now dropping to fourth place.

Bank of America Merrill Lynch (BAML) is a new entrant in the top five this year, rising to fifth place from sixth last year. In order, the top five ranking FX banks in 2016 were: Citi, JPMorgan, UBS, Deutsche Bank and BAML.

FX trends for 2016

The survey put total FX volumes at almost $95 trillion, a 23 per cent drop on last year, which is in line with market expectations.

The FX survey's results have highlighted the following broad trends:

• structural changes to the markets;
• management upheaval among many big banks;
• new non-bank entrants; and
• lack of volumes and volatility.

Top five banks lose a quarter of FX market share

The results also show a declining combined FX market share for the top five banks. This year they hold 44.7 per cent of the total volume, compared to more than 60 per cent in 2014. Euromoney's analysis of the results notes that: “The hopes of many global FX heads and their investment bank bosses – that the share of the big banks would rise inexorably as the market became more automated and that they would be able to benefit from oligopolistic pricing power as a result – now seem like distant and deluded dreams.”

Non-bank providers challenge market with new technology

The top 10 also saw a new phenomenon this year – the entry of a non-bank FX liquidity provider, in the form of XTX Markets, which ranked in ninth place with 3.87 per cent of the FX market share. Other non-bank providers in the top 50 in 2016 include Tower Research Capital, Jump Trading, Virtu Financial, Lucid Markets and Citadel Securities. Euromoney's analysis notes: “Many of the banks ranked outside the top 10 overall this year are understood to be sourcing liquidity from non-bank providers such as XTX, Tower and Jump. They look set to gain more market share in the future, helped by new technology, more defined business models and a lower-cost infrastructure base than the traditional FX banks.”

Multi-dealer platforms

In terms of multi-dealer platforms, Thomson Reuters's FXall service is still in first place with 30 per cent of market share.