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Foreign Exchange

Weekly review: Platforms talk up prospects; CB figures show volume decline

FX trading platforms dominated coverage this week as competition heats up. At the same time the potential for some consolidation is never far away. Central banks reported FX trading volumes have been flat, and markets should brace themselves for more volatility in August.

It was a busy week for FX platforms this week as EBS and its new rival,traFXpure, revealed to EuromoneyFXNews their plans to revamp an existing platform and, in the latter’s case, to introduce a new way of dealing for banks and professional traders. Both are timetabled to implement their plans at the end of the year. FXspotstream, an API-based electronic communication network (ECN) established by a consortium of leading banks, also announced this week that it had gone live. It will be interesting to see if it gets traction with its no-brokerage-fee business model.

Meanwhile, it was a bad week for Knight Capital, the owner of FX platform, Hotspot FX. After revealing a $440 million loss this week due to a computer glitch on its equity trading system, it’s now seeking a buyer, or at best, a capital injection. That could soon see Hotspot up for sale. It could be a sought after asset, turning over $30 billion in average daily volumes in June.

All this came asthe world’s leading central banks released data this week that showed that FX volumes have fallen. This has largely been driven by reduced spot trading, with swaps volumes adding some respectability to the numbers. The worst-affected region was North America, where spot volumes declined 24%.

Still, the leading FX bank, Deutsche Bank, says it is outperforming those global volumes. The bank told us this week that volumes for the first half were up 25% on the same period last year. Banks and pension funds have been the strongest sector, where volumes are “north of 50% higher”.

The markets had a busy week of announcements and data, with the European Central Bank meeting on August 2, where it decided to keep rates on hold, and where ECB president Mario Draghi outlined his bond-purchasing scheme and other non-standard monetary measures. US non-farm payrolls gave a positive surprise to finish the week, with payrolls up by 165,000, stronger than the median forecast of 95,000.

August is here, with the potential for a summer lull, but traders shouldn’t be complacent. Recent history suggests that August is a month of heightened risk aversion and volatility, and markets are yet to be convinced that Draghi is the saviour of the eurozone.

Speaking of central banks, it was also interesting to see the latest reserve currency numbers from the Swiss National Bank. It appears that the SNB is having some trouble diversifying its euro-denominated reserves. Citi estimated that it was able to diversify only about 25% of the reserves it accumulated in the second quarter. “Other currencies” were the biggest beneficiary, the data showed.

And finally, on the hiring front, HSBC said that it has appointed a new head of hedge fund sales, effectively replacing Michael Spencer, who left for JPMorgan in May.Lloyds continued the build-out of its FX business with two hires from UBS in Australia, and Société Générale hired a new shooter for its hedge fund sales team.

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