Foreign-exchange trading is consolidating among the five biggest banks, a trend that may cut the number of competitors in the $5.3 trillion-a-day market, according to Greenwich Associates.
The largest currency dealers are Barclays Plc (BARC), Citigroup Inc. (C), Deutsche Bank AG (DBK), JPMorgan Chase & Co. (JPM) and UBS AG (UBSN), and they controlled about 53 percent of global volume in 2013, the Stamford, Connecticut-based research firm said today in a report. That compares with about 39 percent for the top five in 2005.
“A slowdown in trading volumes and the loss of market share to larger rivals is making it difficult for many dealers to sustain the level of volume required to support their costly infrastructures and maintain profitability,” Greenwich said.
The largest banks won business as their closet competition — the sixth- through 10th-biggest dealers — saw their market share drop to 22 percent last year from a peak of 27 percent in 2011, the research firm said. The next 10 banks “also experienced significant declines,” Greenwich said.
The world’s biggest financial market is being reshaped by electronic trading, regulation and other trends, Greenwich said. Those elements are likely to remain in place in the near term, further ramping up the concentration of transactions among a few dealers for the next six months to a year, it said.
Signs of consolidation in the foreign-exchange market come as trading has risen in recent months. CLS Group Holdings AG, operator of the world’s largest currency-trading settlement system, handled a record $5.94 trillion a day in September as volume recovered after smaller price swings had curbed activity.
“The numbers in the Greenwich survey make sense, particularly in the low volatility environment we recently experienced,” Brian Andreyko, head of strategy and corporate development at financial trading technology firm Tradair, said in New York. “However, as technology begins to level the playing field, these numbers will slow as the experts in their respective markets begin to take control and shift the dynamics.”
It’s still unknown whether the increase in volatility and trading activity will be sustained, and “remains the biggest wildcard for FX market structure change, and therefore changes to the competitive landscape,” Greenwich said.
“A more active market means more dealer revenue to go around for everyone,” Kevin McPartland, head of market structure for Greenwich, said in the statement.