SINGAPORE's foreign exchange (FX) market grew strongly - up 35 per cent from three years ago, driven by FX volatility.
Singapore remains the biggest FX centre in Asia and the third-largest globally after London and New York, according to the 2016 Triennial Central Bank Survey by the Bank for International Settlements released on Thursday.
The average daily trading volume of Singapore's FX market was US$517 billion in April 2016, up 35 per cent from US$383 billion in April 2013.
Singapore's share of global FX volumes has grown to 7.9 per cent in 2016, from 5.7 per cent three years ago.
The market share gain comes as trading in FX markets has fallen; worldwide it averaged US$5.1 trillion per day in April 2016, down from US$5.4 trillion in April 2013.
Singapore overtook Tokyo to become the world's third-largest FX centre in 2013. In 2010 Singapore had ranked fourth, with average daily turnover of US$266 billion that year, behind London, New York and Tokyo.
The survey also showed the rise of the yuan and decline of the euro which has continued since the beginning of the euro area sovereign debt crisis in 2010. Both these trends were also reflected in the FX activity here.
The US dollar remained the dominant vehicle currency, being on one side of 88 per cent of all trades in April 2016. The yuan doubled its share, to 4 per cent, to become the world's eighth most actively traded currency and the most actively traded emerging market currency, overtaking the Mexican peso.
The expansion in Singapore's FX market was chiefly driven by growth in G-10 and Asian currencies.
The fastest growth included the yuan (78 per cent), yen (67 per cent), sterling (60 per cent) and won (55 per cent), said the Monetary Authority of Singapore.
The euro was the only currency - out of the top 10 traded in Singapore - where trading volume fell, down 4 per cent from three years ago.
G-10 currencies are the most heavily traded currencies in the world. They are the US dollar (USD), euro, yen, sterling, Swiss franc, Australian dollar (AUD), New Zealand dollar,Canadian dollar, Swedish krona, and the Norwegian krone.
Foreign exchange swaps made up the largest traded foreign exchange product class in Singapore and accounted for 48 per cent of all trades, followed by spot (24 per cent) and FX forwards (20 per cent), said the MAS.
Interest rate derivatives market also registered strong growth, with average daily volumes surging 57 per cent to US$58 billion in April 2016, compared to US$37 billion in April 2013, the second-highest in Asia.
Said Jacqueline Loh, MAS deputy managing director: "Singapore is building on its role as the pre-eminent marketplace in Asia for global and regional banks, non-bank financial institutions and corporate treasurers to manage their FX risks.
"MAS is working with the industry to further enhance price discovery, liquidity and transparency in our FX market by strengthening electronic trading capabilities and anchoring market infrastructure."
Traders said that FX volatility is behind the strong increase in trading volumes and the fact that Singapore is a regional hub for global and regional banks as well as MNCs is driving FX activity here.
"Singapore is a regional hub for global and regional banks, non-bank financial institutions and over the years also a hub for corporate treasuries centres," said Andrew Ng, DBS Bank group executive & head of treasury & markets.
The jump in the volatility of FX in 2015 and 2016 is behind the strong growth as FX hedging activities increased, said Mr Ng.
He added that the jump in FX swaps is also significant as institutions used the swap market to fund their balance sheet.
"The negative interest rates in some currencies also drove the growth in volume of FX swap and cross currency swaps," said Mr Ng.
Central Banks of Denmark, Sweden, Switzerland and Japan have imposed negative interest rates in their bid to boost their economies.
Yuan trading will also expand further as it gains in acceptance as a payment currency and the Chinese unit, also known as the renminbi (RMB) officially becomes an international foreign reserve currency on Oct 1.
"With RMB becoming a reserve currency, the volume will go up and you can see the use of RMB as a payment currency has climbed according to the survey," said Mr Ng.
The yuan was the fifth most-active currency for global payments in July, according to global transaction service provider Swift last month.
The yuan's market share increased to 1.9 per cent in July from 1.72 per cent in June.
Yuan followed behind the USD, the euro, sterling and the yen, said Swift.