Barclays tops the ranks of the global foreign exchange market in terms of market share. The top tier of global foreign exchange dealers includes six banks: Barclays, Deutsche Bank, Citi, UBS, HSBC, and J.P. Morgan. These banks comprise the 2012 Greenwich Share Leaders in Global Foreign Exchange.
Although individual members of this group — including Citi and HSBC — gained market share from 2010 to 2011, the results of Greenwich Associates 2012 Global Foreign Exchange Services Study reveal that these market leaders in aggregate lost market share to the broader field of FX competitors last year.
The reason: In an era of increasingly onerous capital reserve requirements that erode profit margins in many investment banking and capital markets businesses, FX trading is viewed as an attractive business and banks are making hefty investments to build out their platforms. Investments in foreign exchange franchises by banks not traditionally viewed as top-tier FX dealers have begun to affect the market's competitive landscape — a trend that Greenwich Associates predicts will continue and even accelerate in the months and years to come.
"We expect this 'flattening' trend to continue as a large number of banks improve the capabilities and reach of their platforms, — says Greenwich Associates consultant Frank Feenstra. "With a growing number of committed banks competing against the market leaders for volume and market share, customers will reap the benefits of more intensive service, upgraded systems and better pricing."
As part of its 2012 Global FX Study, Greenwich Associates interviewed 1,632 large corporate and financial users of foreign exchange in Asia, Europe, Japan, Latin America and North America. Among other questions, these participants were asked to name the dealers they use for FX, to quantify the amount of trading business allocated to each dealer and to rate the service quality provided by each dealer. Dealers that receive service quality ratings topping those of competitors by a statistically significant margin were named Greenwich Quality Leaders. The 2012 Greenwich Quality Leaders in Global Top-Tier Foreign Exchange Service are Citi and HSBC.
The accompanying list presents the complete list of the 2012 Greenwich Share and Quality Leaders at a global and regional level.
Global FX Trading Volume Increases 15%
A 15% increase in global foreign exchange trading volumes (including short-dated swaps and rollovers) last year reversed a decline in FX activity in 2010. (Note: Greenwich Associates tracks foreign exchange trading volume among end-user corporates and financials. Data in this report does not include inter-bank trades.)
Excluding short-dated swaps and rollovers, the strongest growth in global FX markets last year occurred in the Americas. FX trading volume ex-short-dated transactions increased 34% in the United States in 2011. In the much smaller Canadian market, longer-dated FX trading volumes increased more than 60%, and trading volumes increased by roughly 45% in Latin America. The large increase in Canadian FX trading volumes last year was driven by hedging activity among the country's exporters of oil and other commodities, which moved to take advantage of favorable exchange rates and guard against future appreciation of the Canadian dollar against the U.S. dollar.
European FX trading volumes ex-short-dated trades increased 6%. That growth was not evenly distributed across the European region; trading volumes in the United Kingdom were flat from 2010 to 2011, while trading volumes in continental Europe increased 10%. A 15% increase in Asia Pacific FX trading volumes ex-short-dated trades was driven by a 23% pickup in volume in Japan. Trading volumes in Asia ex-Japan grew 6% from 2010 to 2011.
Last year's increase in longer-dated FX transaction volume was driven by financial institutions. While total volumes ex-short-dated trades increased only 4% from 2010 to 2011 among corporates, volume grew by 17% among financials. Growth in the financial segment was in turn driven in large part by retail aggregators. While trading volumes increased 12-14% among customer banks, fund managers and pension funds, volume among retail aggregators jumped 42%. Hedge funds — which in past years accounted for a sizable share of FX growth — actually lagged the market average in those terms, posting a year-over-year increase of 10%.