Javier Paz ForexDatasource.com, Managing Director
Javier Paz ForexDatasource.com, Managing Director

Differentiated Liquidity Provisioning: Non-Bank’s increasingly prominent role

During a recent study involving three major banks and eight large multi-dealer platforms (MDPs), I confirmed what I had learned in hushed tones at industry events, namely that non-bank firms are assuming an increasingly significant liquidity provisioning role. Since that study, I’ve had the opportunity to put this growth in context and how this group of firms got there.

Figure 1 As a whole, the institutional respondents I spoke to generated an average daily volume (ADV) in FX of approximately US$1.3 trillion, or 19% of the 2017 total global ADV.1 It’s easy to give an opinion that banks are losing market share to non-bank market makers, but to try and prove it is challenging. Banks are indeed losing market share to non-banks, and for that matter also to peer-to-peer trading and to non-reporting banks that match trades at anonymous venues with other non-bank groups, such as retail brokers. The biggest reason for this difficulty is that any syphoning out of bank market share won’t be seen in official FX surveys. After all, 100% of BIS FX survey respondents are banks – to be precise, some 1,300 banks in a universe of at least 9,000 banks.  Figure 2 Market share transfer Thus, if non-bank activity is out of reach for BIS Triennial FX surveys and the large non-bank firms stay mostly tight lipped about their own ADV, what data indeed...continued

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