Electronic trading venues top Spot FX execution methods

LMAX Exchange

The outlook for spot FX execution methods is both fluid and evenly split. The first BIS reading of execution method market share came in April 2010. Using execution venue data from the U.S. FXC and FX JSC semi-annual surveys, Aite Group constructed an estimate of how the market share of various execution methods has changed since April 2010. Aite Group estimates that between April 2010 and October 2012, the industry witnessed the following market share changes:

  • Electronic trading venues: Aite Group estimates that SDPs and MDPs have seen a (substantial) 4.0% market share gain since the April 2010 BIS survey. An estimated US$520 billion (32% of the spot FX market) was executed daily through electronic trading venues in 2012, making this the largest type of spot FX execution venue.
  • Customer direct execution: Trading between a reporting dealer and a client or non-reporting dealer via direct telephone conversation or RCD has likely fallen from 21.3% to 17.9%. This change denotes a slight shift toward electronic trading venues.
  • Electronic broking: Trading executed via electronic broking venues increased slightly in notional terms, from US$389 billion in April 2010 to US$402 billion in October 2012, but it saw some market share tussle with electronic trading venues in 2012.
  • Voice brokers: The ongoing trend away from voice broking in the spot FX market likely continued between 2010 and 2012, with the share of this execution venue falling from 8.5% in April 2010 to 6.4% in October 2012.
  • Inter-dealer direct: Direct activity between two reporting FX dealers saw a noticeable increase between April 2010 and October 2012, from 14.8% to 18.4%. Higher bank capitalization in the United States and Europe appears to be boosting trading activity among financial institutions.

Spot FX Volume by Execution Method

electronic-trading-venues-top-spot-fx-execution-methods

Source: BIS, Aite Group ‘Global FX Market Update 2013: Increased Market Transparency, More Competition’, June 2013

David Mercer, LMAX Exchange CEO, shares insights.

Source: Aite Group ‘Global FX Market Update 2013: Increased Market Transparency, More Competition’, June 2013

Video Transcript

Electronic trading venues top Spot FX execution methods

LMAX Exchange, CEO, David Mercer shares his thoughts on the recent Aite Group report which highlights 55% of all Spot FX trades are executed via electronic venues. David Mercer speculates that in the long term e-trading will become the primary mechanism of trade execution with a 100% share of FX volumes. The middleman, broker and dealing desk will still remain, with the growth of this execution type driven by the increasing and ease of access to electronic trading venues. In the interim there is still a place for voice brokering, particularly in less liquid products, as well as a place for relationship management, methods which can be used to ensure the best price for the customer with the execution of trades taking place at an electronic venue.

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