Greenwich Associates: Top Five Dealers Dominate FX, But Less Than Before

Top-tier dealers in foreign exchange are ceding market share. While companies are narrowing the scope of product, investors continue to increase their trading.

The top five dealers in foreign exchange are ceding market share. Although the world’s five biggest FX dealers still capture an impressive 44% of global market share in aggregate, that proportion is down from 48% last year and from 53% as recently as 2013.

Several trends are driving these changes. While top-tier dealers have been narrowing the scope of their product, regional and client coverage, FX investors continue to increase their trading via multi-dealer platforms which create a more level playing field for liquidity providers.  Meanwhile, regional dealers have been stepping up their game while a new cadre of principal trading firms are threatening to enter the fray.

“As a result of these changes, the FX market is now one of the least concentrated over-the-counter markets in the world, and financial end-users, regulators and emerging dealers all benefit from its growing diversity,” says Kevin McPartland, Head of Market Structure and Technology Research at Greenwich Associates and author of a new report, Top Five Dealers Dominate FX, But Less Than Before.

Contrary to popular opinion, nonbank liquidity providers (NBLPs) are not taking meaningful share from the bulge-bracket banks. Rather, as big banks continue to refine their client lists and avoid markets that don’t generate a high enough return on equity, regional banks with local expertise are emerging as useful partners to even the largest asset managers who still need service in those markets.

“The bottom line is that the FX market is increasingly competitive, and competition is always good for the market,” says Kevin McPartland.