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Currency trading shifts to multi-dealer systems, Greenwich says

[NEW YORK] Currency investors are increasingly using electronic systems connected to multiple dealers as the market comes under greater scrutiny by regulators, according to Greenwich Associates.

Institutional investors and large corporations executed 49 per cent of their foreign-exchange trading volumes on multi- dealer platforms last year, up from 45 per cent in 2013 and 38 per cent in 2008, the Stamford, Connecticut-based consultant said in a report. The increase comes as trading by traditional methods, such as phone, instant messaging and single-dealer platforms, has fallen.

"The FX 'fixing scandal' and related bank fines have already played a part in changing buy-side behavior," wrote Kevin McPartland, head of research for market structure and technology at Greenwich, who co-authored the report based on interviews with more than 1,600 people participating in foreign- exchange markets globally.

Asset-management companies are boosting electronic trading as regulatory scrutiny discourages banks and dealers from providing "market color" to clients to avoid any perception of impropriety, according to Greenwich. The platforms are also becoming more popular as banks become less active in currency markets because of rising capital requirements.

"Asset managers have proactively worked to beef up internal policies to both ensure maximum returns for the impacted funds and to reassure customers, such as pension funds and sovereign wealth funds, that they're getting the best the market has to offer at that moment in time," Mr McPartland wrote.

Thomson Reuters Corp's FXall platform had the largest volume-weighted share of trading last year at 21 per cent, according to Greenwich. It's followed in popularity by 360T, State Street Corp's Currenex, Bloomberg LP's FXGO and FX Connect.