FX spot volumes in decline, survey results reveal

Tax burden falling

Average daily spot turnover in the UK fell by 12% from $804 billion to $711 billion between October 2011 and April 2012, according to the Bank of England's Foreign Exchange Joint Standing Committee (JSC), which released the results of its semi-annual turnover survey yesterday.

The findings reflect a general trend of depressed trading volumes on a number of major platforms, including EBS and Thomson Reuters, during the first half of 2012, although the JSC did report average daily turnover in FX swaps had risen by 8% from $882 billion to $957 billion during the same period.

Across all FX products, average daily reported turnover in the UK totalled $2 trillion in April, 2% lower than in October 2011 and 5% lower than April 2011, although April 2011 did see a sharp 23% spike in volumes to $2,191 billion compared with October 2010.

Drilling down into the 12% decline in spot activity in the UK, the JSC finds trading with the 30 reporting dealers fell from $318 billion to $290 billion between October and April, while trading with other banks and other financial institutions also fell significantly – by almost 13% and 19% respectively. Trading with non-financial institutions was the one segment to increase, rising from $25 billion to $32 billion.

The JSC's turnover survey, which is taken every April and October on the basis of data submitted by 30 financial institutions, is conducted concurrently with similar surveys by the central bank-sponsored FX committees in North America, Canada, Australia, Singapore and Tokyo.

The US Foreign Exchange Committee revealed an even sharper decline in average daily spot turnover for North America, falling by 23% between October and April. Average daily volume across over-the-counter FX products fell by 12% from $977 billion to $860 billion.

The most pronounced drop in spot turnover came from transactions in EUR/USD, which fell by $100 billion, accounting for roughly 75% of the overall decline, the US survey noted. Spot turnover was also down, albeit to a lesser extent, in a number of other currencies, including the Canadian dollar and sterling.

Elsewhere, average daily turnover in Australia increased by 5% between October and April, although it was down 20% year-on-year. For spot, forwards and FX swaps, the Australian Foreign Exchange Committee reported a jump of 6% to $170.2 billion, but that figure was down 19% compared with April 2011. Options and currency swaps saw the sharpest decline overall, falling by 19% over the past six months and 39% over 12 months to $5.5 billion.

The Singapore Foreign Exchange Market Committee also reported a downward trend in turnover over the six-month period between October and April, with average daily spot volume falling by 16% to $94.7 billion and average daily outright forwards volume falling by 22% to $41.1 billion. Average daily volume in FX swaps in Singapore rose by more than 5% to $164.2 billion.

In Japan, the Tokyo Foreign Exchange Market Committee (TFEMC) has expanded the number of financial institutions contributing to its survey from 20 to 32 and reported modest falls in volume across spot, swaps and options since April 2011, although average daily volume in FX forwards rose from $310 million to $364 million. "The monthly foreign exchange turnover in April  decreased slightly compared with one year ago, owing to the lower volatility of major currency pairs in the foreign exchange market," the TFEMC said on July 30.

Lastly, in Canada, the FX committee reported that, despite a modest fall in spot and forwards volume, overall average daily volume across FX spot, forwards and swaps rose by 13.7%, from $52.4 billion in October 2011 to $59.6 billion in April 2012. But set against April 2011, that volume was down 2.6% from $61.2 billion. Average daily volume in currency swaps and options in Canada had fallen by 15.2% since October 2011, to reach $2.8 billion in April this year.

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