Subject: Banks’ shift pushes FX trading to $4,000bn a day - FT
From: "Michael Andrews" <[email-masked]>
To: "Thad Brown" <[email-masked]>, <[email-masked]>, "Hunter Biden" <[email-masked]>, "Eric Schwerin" <[email-masked]>, <[email-masked]>, "Neil Callahan" <[email-masked]>
Date: Tue, 31 Aug 2010 22:20:07 -0400

FX may be less risky for banks in ordinary times but with the banks  
taking larger portion of market it is time to ask if the banks can  
analyze the political risk that might impact currency trades. - Michael

Banks’ shift pushes FX trading to $4,000bn a day
By Peter Garnham and Jennifer Hughes
Published: September 1 2010 00:04 | Last updated: September 1 2010 00:04
Currency trading has surged to record levels in 2010, even as the  
foreign exchange market becomes increasingly concentrated among a  
smaller number of banks and trading centres.

According to the Bank for International Settlements, an average  
$4,000bn is being traded daily, up from $3,300bn in 2007, when the BIS  
last surveyed the market.

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Bank executives have become increasingly interested in foreign  
exchange, or FX, as part of their search for less risky sources of  
profits following the financial crisis.

FX trading is a so-called “flow” business in which profits are made  
from trading commissions rather than risking increasingly expensive  
bank capital.

The rise in turnover has been driven by a near-50 per cent jump in  
“spot” FX – currencies traded for immediate delivery – to $1,500bn a  
day.

The BIS report also showed that London has increased its dominance of  
the currency world, accounting for 36.7 per cent of global turnover,  
up from 34.6 per cent in 2007.

The US was second, with 17.9 per cent, compared with 17.4 per cent  
last time, while Japan retook third place from Switzerland, with a 6.2  
per cent share.

Simultaneous data from the Bank of England on Tuesday highlighted the  
increasing concentration of FX among a handful of banks. According to  
the Bank’s report, the 10 banks with the highest FX turnover increased  
their market share to 77 per cent from 70 per cent in 2007. The top 20  
accounted for 93 per cent of the market.

The biggest banks in the FX market are Deutsche Bank and Citigroup.  
Other top players include UBS, JPMorgan and HSBC.

According to the BIS, the higher market turnover reflects increased  
trading activity by “other financial institutions”, a group that  
includes hedge funds and other non-bank counterparties such as pension  
funds and mutual funds.

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