The Bank for International Settlements (BIS) has released its triennial survey into “Foreign exchange and derivatives market activity”. The last survey was back in April 2007 when the credit crisis was making barely a ripple, so any comparison between those halcyon days and the jaundiced ones of April 2010 has to be interesting.
That month New Century Financial, one of the largest US sub-prime lenders, filed for Chapter 11. There were another three months to go before Bear Stearns started to shake and Ben Bernanke warned that: “The credit losses associated with sub-prime have come to light and they are fairly significant. Some estimates are in the order of between $50 billion and $100billion of losses.” (You have to smile don’t you?)
The good news is that the survey shows that growth in spot FX has continued: average daily turnover is up almost 50% at $1.490 trillion in April 2010, compared with $1.005 trillion in April 2007.
The survey of market activity in April 2010 is the eighth since the series started in 1989. Some 53 central banks and monetary authorities, coordinated by the BIS, collected data from 1,309 banks and other dealers (compared with 1,260 in 2007) on turnover in FX instruments.
Turnover in ‘outright forwards’ is up more than 30% at $475 billion, compared with $362 billion; ‘FX swaps’ were up marginally at $1.765 trillion, compared with $1.714 trillion. Stripping out the ‘outright’ number, the conclusion could be that spot-related business has increased to $1.965 trillion per day.
The (not so) bad news is that FX option business has fallen a little to $207 billion per day, from April 2007’s $212 billion. Given the decrease in demand for structures, the increased volatility of volatility and a smaller pool of market makers, I think that is quite a good showing.
The oft-quoted – but rationally questionable – aggregate turnover figure (the sum of spot, outrights, swaps, currency swaps and options) is almost $4 trillion per day – $3,981 billion to be precise and up from $3,324 billion in 2007.
The data bears out the conclusions drawn from the biannual FX volume data from the Fed, the Bank of England’s joint standing committee and other national bodies (FX news: Official volumes continued to climb in six months to April) that London is still the preferred booking domicile of global electronic business: banks in the United Kingdom accounted for 36.7% of FX market turnover, up from 34.6% three years ago.
