Electronic Trading of FX Jumps in Asia from 38% to 45% — Report

Despite a mild slowdown in global foreign exchange trading activity last year, electronic FX trading systems have continued to attract new clients both in developed markets and in Asia, according to new research by Greenwich Associates.

In a new report released today, “Trading Slowdown Can’t Stop the Electronification of FX, Greenwich reports that continued adoption of e-trading by large numbers of institutions and companies is furthering the transformation of FX into a truly electronic marketplace.

Even in the U.S. FX market, where electronic trading is standard operating procedure for investors and many large corporations, the report found that U.S. e-trading platforms managed to expand their customer bases last year by meaningful margins. The share of U.S. market participants trading foreign exchange electronically increased to 82 percent in 2012 from 76 percent in 2011. New customers were also gained in the United Kingdom, where the share of institutions and companies trading FX electronically increased to 82 percent from 80 percent, and in continental Europe where the share of market participants executing trades electronically increased to 75 percent from 73 percent.

A more significant jump in adoption of electronic trading by investors and companies took place in Japan where market participants have been slow to adopt electronic trading. This in part was due to concerns that a switch to e-trading would undermined personal relationships with banks who are seen as valuable suppliers of market information, trade ideas, sales coverage and support, and of course, credit. However, the share of Japanese companies and institutions trading FX electronically jumped to 45 percent in 2012 from 38 percent in 2011.

In other part of Asia, electronic trading continued its slow advance. From 2011 to 2012, the share of Asian-ex Japan /New Zealand/Australia institutions trading FX electronically increased to 57 percent from 54 percent. The slow but steady growth of electronic trading in Asia has to do with the heterogeneous make-up of the marketplace and the differing levels of development among Asian country markets and institutions.

“Globally, two thirds of institutions most active in foreign exchange markets now trade electronically, including nearly 80 percent of participating financial institutions and over half of corporations,” says Greenwich Associates consultant Woody Canada. Including short-term transactions, e-trading systems captured 71 percent of global FX trading volume in 2012. Institutions executed 76 percent of trading volume in G-10 currencies electronically, as well as 53 percent of trading volume in emerging markets currencies and 23percent in currency options. Even though e-trading volumes were stagnant last year, Greenwich expects the growth to pick up in 2013 as the FX market gains steam and participants drop the phone Including short-term transactions, e-trading systems captured 71 percent of global FX trading volume in 2012. Institutions executed 76 percent of trading volume in G-10 currencies electronically, as well as 53percent of trading volume in emerging markets currencies and 23 percent in currency options.

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