Changing FX landscape and impact on Asia

The detailed assessment of the BIS FX triennial survey was released on December 1st, 2010. While the volume growth and the increase in cross-border transactions are well known from the initial report, the detailed report and annex provides us with a deeper view into the newer trends in the market. • The other financial institution segment comprising of hedge funds, non-reporting banks, pension funds, mutual funds, insurance companies and central banks grew by 42% to a market share of 47.7%. This is mainly driven by an increased activity of this segment in the spot market – driven by the opportunities in the volatility of this market. • The reporting dealer market also grew – but only by 11% thus falling in the market share to 39% from around 41%. The reasons for this fall, or rather lack of growth, is attributed to the rapid growth of other segments, increase in the concentration in the banking sector and the growth of electronic brokering systems and the related efficiency. • The non-financial customers share has fallen to 13% and is the lowest since 2001. While the spot transactions went up, there was a decrease in the swaps and options volume. Thus the future of the market looks like it will be a financial institution dominated business. The volumes in the reporting dealer segment will continue to stagnate and probably will fall further. The non-financial customer participation might be predominantly limited to spot. Since the crisis, the spot volume growth has been tremendous. In this situation, the flow of major volumes should be noted – 65% of the volumes are cross-border and a majority of the new flows are happening in Asia. Thus the next level of volumes growth will emerge from Asia and will be driven by the financial institution segment.