London FX volume falls 12% to US$2.41 trillion a day average: BoE

[LONDON] Foreign exchange trading out of London has fallen 12 per cent over the last three years to an average US$2.41 trillion a day, driven by a fall in spot market and hedge fund activity, the Bank of England said on Friday.

Declining appetite for major currencies like the US dollar and euro, which typically dominate London trading, also contributed to the fall in volume, the BoE said in its quarterly review, citing data collected in its triennial review of the FX market.

The survey was conducted before the June 23 Brexit referendum since when volume and volatility have risen dramatically and the value of sterling has plunged.

"The decline in the United Kingdom's total market share is consistent with the overall decline in spot turnover and hedge fund activity, which have traditionally been based in London," the BoE said.

"The survey also indicated reduced trading in major currencies, an activity traditionally concentrated in London, and increased appetite in so-called emerging market currencies typically traded most heavily in their respective regions."

London remains the FX capital of the world, even though its share of the global pie fell to 37 per cent from 41 per cent. Some 69 per cent of London FX turnover was cross-border, reflecting the city's role as an international financial centre.

Currency trading has been hit over the past three years by changes in regulations aimed at getting banks to take less risk and a market-rigging scandal that culminated in dozens of traders being fired and banks fined billions of dollars.

Hedge funds now account for a "significantly" lower share of the London FX market, the BoE said.

Their share almost halved to 12 per cent from seven per cent, and their overall volume fell by more than 50 per cent to US$164 billion per day.

Spot market trading chalked up the biggest decrease, down 24 per cent to US$784 billion a day in April from three years earlier. This accounted for more than three quarters of the overall fall in FX trading volume, the BoE said.

The survey also showed that most trading is done on electronic platforms. Some US$1.35 trillion a day on average, or 56 per cent of total turnover, is now executed in this way.

REUTERS