The emergence of a clear bulge bracket in foreign exchange should raise questions for all participants in the industry. According to Euromoney’s 2007 FX poll, just five banks now account for around 61% of client activity. This is up sharply from even just a year ago, when the top five had a 54% market share. In 2002, it was around 45% and a decade ago it was less than 29%.
Such consolidation in a financial market intuitively seems unsustainable. It suggests that the smaller players will struggle to gain sufficient flow to run viable businesses, and that ultimately the bulge-bracket banks will find that they cannot get out of the positions they accumulate from their dominance of the market.
Clearly, though, most of the hundreds of banks that are active in foreign...
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