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Foreign Exchange

Dealers becoming more selective on FX platforms

Multi-dealer platforms may remain bullish about their prospects, but if other banks follow Citi’s lead and pull away from them, market share may continue to fall.

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Single-dealer platforms (SDPs) increased their daily share of spot transactions by almost half between April 2019 and April 2020, according to the Bank of England’s semi-annual foreign exchange turnover survey.

In April 2019, SDPs accounted for 14.1% of these trades – just under $123 billion out of a daily total of more than $879 billion. This year that percentage rose to 21%, with SDPs trading a daily average of $163.6 billion out of a total of $776.2 billion.

Over the same period, the average daily volume of spot transactions conducted on multi-dealer platforms (MDPs) fell sharply, from more than $245 billion – 28% of the market – to just over $77 billion, or just 10% of daily volume. Even allowing for the reduction in volumes recorded in the latest survey, this is a significant drop.

“There are many factors contributing to the increased volume over SDPs and disclosed channels,” says Alan Schwarz, CEO FXSpotStream. “One of these is the migration from anonymous channels driven by concerns with respect to market impact and information leakage. Another significant factor is the ongoing focus on reducing the cost of execution for liquidity providers.”

Selective onboarding

The market dislocation in March also played a significant role in the change in volumes.

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