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Citi holds on to the top ranking in this year’s Euromoney foreign exchange rankings, but elsewhere there have been unprecedented shifts.
Structural changes to the markets, management upheaval among many big banks, new non-bank entrants and lack of volumes and volatility have seemingly levelled the playing field among the industry’s biggest firms.
The biggest change in the rankings this year is the decline of the combined market share of the top five global banks. Their market share in the survey peaked in 2009 at 61.5% and was still above 60% as recently as 2014.
This year the top five banks account for just 44.7% of total volume. The hopes of many global FX heads and their investment bank bosses – that the share of the big banks would rise inexorably as the market became more automated and that they would be able to benefit from oligopolistic pricing power as a result – now seem like distant and deluded dreams.
One FX veteran tells Euromoney that the decline of the top five banks’ combined market share “is exactly what the regulators would want in a market they continue to keep a very close eye on.”
While the market share of the top 10 FX houses overall also declines, from over 75% last year to just 66% this year, the fall is entirely due to the performance of the top five banks. The banks ranked from sixth to 10th place overall produced a combined market share of 22%, roughly in line with the last five years of the survey and considerably higher than the 14% they managed in 2008.
Citi actually extends its lead over the second-placed bank in the survey, which market participants regard as the most accurate reflection of client-based activity in the global foreign exchange markets, to more than four percentage points – even though the bank’s own market share declined by more than three percentage points, from 16.11% in the 2015 survey to 12.91% of trading in 2016.
That winning market share is the lowest for any top-ranked bank in the survey since UBS won the survey in 2004.
Citi maintained its leadership overall in important product areas such as spot/forwards and swaps, as well as in the key real money and bank client categories. It rises one place this year to win in corporates and overall electronic market share, although it falls to third overall for options.
One big story in this year’s rankings is the decline of Deutsche Bank. It was once the undisputed leader in global foreign exchange, losing the top position in the Euromoney rankings three years ago after nearly a decade of dominance.
While new group CEO John Cryan has gone out of his way both publicly and privately to describe the FX business as one of the beleaguered bank’s crown jewels, the days when Deutsche Bank was able to secure an overall market share of more than 20% (as recently as 2009) are long gone.
In the latest set of rankings, Deutsche falls from second to fourth place overall: its market share of 7.86% is almost half what it was a year ago. Deutsche’s decline is widespread, and competitors say has been driven in part by the bank cutting back on the number of clients it covers. It falls from second to fifth in spot/forward; from second to eighth among real money clients and loses top spot among bank clients. It remains the leading overall options house.
Perhaps the most surprising fall of all is in its overall electronic market share. Deutsche’s Autobahn system revolutionized global FX trading and in banner years accounted for more than a quarter of all electronic trading. This year, Deutsche can only manage fourth place in e-market share, from holding the top ranking last year, and its share has fallen from 17.5% to 8.73%.
Two banks overtake Deutsche to move into the top three overall, but the similarities end there: the two banks in question have very different recent histories in global foreign exchange.
JPMorgan jumps to second place in the survey, with a market share of 8.77%, up from fourth place with 7.65% last year. For many years, competitors have said that JPMorgan has failed to punch its weight in FX; it has typically ranked outside the top five overall banks in the Euromoney survey for the last decade. Those accusations have less weight now, even though they have been replaced by rumours about the bank’s competitive pricing strategy.
The US bank rises across a range of categories. Its most notable successes are winning the leveraged fund category with a lead over second-placed UBS of almost eight percentage points and a market share of more than 18%; and jumping from fifth to second place in overall electronic trading. JPMorgan’s one poor ranking is now in options, where it comes a lowly eighth.
UBS returns to the top three global FX banks overall this year. A winner back in 2004, it has been outside the top three since 2009, and last challenged for the top spot overall a year earlier, when its market share of almost 16% was only beaten by Deutsche. Last year it fell to fifth place, its worst performance in a decade, with a market share of 7.3%.
Given the bank’s leadership has spent the last few years de-emphasizing the role of its investment bank, some competitors believed UBS was on a long, slow decline in FX.
But, quietly and consistently, UBS’s markets business has been recalibrating to the new capital and markets environment, as well as maintaining a commitment to best-in-class electronic platforms. Its overall market share rises to 8.76%; and it breaks into the top three overall in spot/forward, swaps, electronic market share and for bank clients. Like JPMorgan, it is a laggard in options, where it ranks seventh.
JPMorgan and UBS have one other important thing in common: while other banks have lost entire benches of senior management from their FX teams in recent years, JPMorgan and UBS have been relatively stable.
At the former, Troy Rohrbach has overseen the FX business since 2005 (he now also runs rates and public finance globally); at UBS, Chris Murphy and George Athanasopoulos, the global co-heads of FX, rates and credit, both joined the bank more than five years ago and have jointly run the division since 2013. Leadership, it seems, does count.
Bank of America Merrill Lynch continues its steady rise up the rankings of recent years, from a nadir of 12th place from 2009 to 2012. It finally breaks into the top five global FX houses overall, up from sixth place last year.
BAML jumped up the rankings into the top five for corporates and real money accounts, and gained ground in both swaps and options – in the latter, it ranks second globally. But BAML still has work to do in the electronic market, where its overall ranking fell from sixth to seventh place. Other US banks also performed well.
Goldman Sachs rose from ninth to seventh overall and Morgan Stanley jumped three places to break back into the top 10.
It has not been a good year in FX for Barclays. Perhaps the bank’s decision to not have a global head of foreign exchange has backfired. The UK-cum-transatlantic bank dropped from third place overall to sixth, and its market share from 8.11% to 5.67%.
Barclays slipped three places to seventh in spot/forward, four places to seventh in swaps and three places to ninth in options. Among client groups, its biggest reversal came among real money accounts, falling from fourth place last year to outside the top 10.
HSBC has also had a disappointing year, falling from seventh to eighth place overall. It also loses its top ranking among corporates last year, falling out of the top five of that client category altogether. Electronic trading remains the bank’s weakest link, and may even be getting weaker, as the bank falls to ninth place in overall e-market share.
Banks have always risen and fallen in the Euromoney rankings over the last 40 years, but this year sees a new phenomenon – the advent of the non-bank liquidity provider. Leading the way is XTX Markets, a spin-off of GSA Capital, whose co-CEO Zar Amrolia was a frequent winner of the Euromoney FX rankings in his previous role as head of Deutsche Bank’s FX business.
In its first year of eligibility, the spot-only XTX makes a stunning debut: ninth place in the overall rankings with a market share of 3.87%; fourth in spot/forwards; fifth for bank clients; third for FX trading platforms; fifth overall for e-market share; and third for electronic trading of spot, ahead of Deutsche Bank with a market share of more than 10%.
XTX is the leader, but not the only non-bank entrant to the survey. Tower Research Capital, Jump Trading, Virtu Financial, Lucid Markets and Citadel Securities all make the top 50 overall market share rankings.
XTX’s ninth place overall looks like a line in the sand for the FX markets. The banks above it are, for the most part, the remaining price-makers; the banks below often price-takers, with the ability to make markets in particular currencies or products.
Many of the banks ranked outside the top 10 overall this year are understood to be sourcing liquidity from non-bank providers such as XTX, Tower and Jump. They look set to gain more market share in the future, helped by new technology, more defined business models and a lower-cost infrastructure base than the traditional FX banks. They could look to build capability in forwards and other markets in the near future.
Among multi-dealer platforms, Thomson Reuters – through its FXall service – remains the clear leader with a 30% market share, although its margin over second-ranked FXConnect almost halved. The big riser among MDPs was third-ranked HotspotFXi, which increased its market share from less than 7% to almost 18% this year.
Total volumes in the Euromoney FX survey came in at almost $95 trillion, while the number of votes held steady compared with last year at around 3,500 clients. That represents a volume fall of around 23% on last year, in line with market expectations.
Euromoney FX Survey 2016Overall market share
|5||6||Bank of America Merrill Lynch||6.40%|
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