Surging Bloomberg FX volumes a ‘serious’ change in the market place

By:
Peter Garnham
Published on:

A surge in volumes on Bloomberg’s multi-dealer FX platform FXGO is altering the landscape in the currency market, as it challenges the dominance of the market incumbents in the sector.

The privately held firm does not reveal exact volume figures, but says turnover is up 79% year to date and 65% year on year.

That contrasts markedly to other leading multi-dealer venues that report their turnover figures.

In the inter-dealer sector, market leader Thomson Reuters has seen its average daily volumes fall 24% year on year, while turnover at Icap’s EBS is down 39%.

Meanwhile, among venues such as Bloomberg, which allow banks and other liquidity providers to deal with clients, average daily volumes are up 15% on the year at FXall and 24% lower at Knight Capital’s Hotspot FX.

Tod Van Name, head of FX and economics at Bloomberg, tells EuromoneyFXNews that the relative outperformance of FXGO is not simply down to the fact that volumes started from a low base.

 
 Tod Van Name:

"People are buying

terminals because

they want access

to FXGO."

"If you take the largest competitors in the multi-dealer space, our volumes are very similar," he says. "So when I say volumes are up 65% year on year, it’s not 65% of nothing. We are talking about some serious changes in the market place."

By comparison, average daily FX volumes last month at Thomson Reuters were $133 billion, and $111.9 billion at EBS. FXall, which Thomson Reuters agreed to acquire in July for $643 million, recorded daily turnover of $105 billion in September, while average daily volumes at Hotspot FX were $25.8 billion.

Van Name says he is "extraordinarily" pleased with the growth of Bloomberg’s product, which has more than 5,000 active users in 100 countries.

Bloomberg's business model is based on subscription sales to the Bloomberg Professional service, or terminal. Those terminals give clients access to FXGO, which operates on a no-brokerage fee model, as well as a multitude of other news, analytic and trading functionality across assets classes.

Indeed, providing electronic trading was originally a way for Bloomberg to increase the stickiness of its terminals, to ensure they were the last piece of equipment to leave a customer’s desktop.

Van Name says customers who use Bloomberg’s electronic trading platforms are a small percentage of those that use it for data and analytics, and for financial information.

"But we've found that a lot of Bloomberg Professional service sales over the past year can be attributed to our integrated FX solution and, in particular to FXGO, our multi-bank, commission-free trading platform," he says.

"That means people are buying terminals because they want access to FXGO."

Clients are, in effect, paying a one-off fee for the terminal, for access to low-cost FX trading.

Regional banks look to lower FX costs

Bloomberg says it has had particular success in the last couple of years selling to regional banks, outside the world’s main financial centres, which have limited IT budgets.

"There is no question that the cost of IT is something we talk about a lot with our clients," says Van Name. "Technology costs have got really high and spread compression in the FX market has been costly for banks."

The firm says the wide range of functionality available on its terminals helps fulfil the need of regional banks, while driving down their infrastructure costs.

Those banks include institutions in countries such as Korea, Taiwan, Malaysia, the Philippines, Poland and Turkey – places where there is a local community of banks that have a network of their own, but need the size and scale of Bloomberg to leverage it effectively.

Bloomberg says it has also seen a strong showing among corporate clients and real-money accounts, both in terms of terminal sales and volumes.

Also, about a third of FXGO users are not FX players, according to Van Name, instead trading currencies as a result of their cross-border transactions.

He says Bloomberg is very focused on how it can make FX tools and FX information readily available to customers who are not primarily FX players.

"That is part of the reason for our success," says Van Name. "We have been able to capture a tremendous amount of FX flow because many customers need a tool on their desk top that lets them access other markets, and that is something we have been able to offer. A third of our user-base is now represented by players outside of the traditional FX community, such as corporations, real money -- fixed income and equity -- accounts and government agencies."

Van Name believes the only way to keep the growth going at FXGO is to continually innovate, especially given the competition in the market, which has seen a host of new trading platforms emerge this year.

He also knows that the firm is going to have to adapt to market changes to maintain its position.

"Regulation is the perfect example of that, and we are going to see some disruptions in the way people trade," says Van Name. "Bloomberg is in the process of becoming a multi-asset class SEF to provide access to liquidity, clearing, reporting and straight-through-processing across all regulated products, including FX. We hope we are able to make the transition to a regulated market as pain-free as possible for our clients."