Foreign Exchange’s Dizzying Turnover Twist
The BIS’ initial findings from its 2010-13 triennial currency trading survey showed the Mexican peso, Chinese renimbi and Russian ruble in the most active tier of daily activity up one-third to $5.3 trillion. Over 1000 banks and dealers from 55 countries participated, as the share of money center institutions fell to around 50 percent and non-financial corporate customers to under 10 percent. Non-bank insurance, pension and hedge funds have jumped into the swap and spot segments each at $2 trillion, as dollar dominance continues with 85 percent use on at least one side, followed by the euro and yen. Singapore is on the list of biggest centers behind the UK and US, and the Australian and New Zealand dollars also climbed the popularity ranks. The peso leapt into the top ten with a 2.5 percent portion of global turnover, with offshore access putting the yuan just behind. Prime brokers accounted for 15 percent of transactions, and retail investors represented 3 percent of the total through electronic platforms. FX forwards and options were growth categories, with the former ahead 40 percent to $675 billion over the period. Half of derivatives were longer maturity, between one week to a year, and only $150 billion in all daily instruments was exchange-traded, implying that open interest may be an “inaccurate reading” for general positions. With amounts from $50-70 billion the Turkish lira, Korean won, South African rand, Brazilian real and Indian rupee are in the leading 20 by volume. Hong Kong and Russia are important dealing locations, and Japan and Singapore hold equal weight at 5.5 percent of worldwide sourcing. A separate tabulation of interest rate derivatives charted a 10 percent advance over three years to $2.3 trillion, two-thirds in swaps and the rest in forwards. Half the structures were in euro, with the real, rand and ruble also featuring regularly. Exchange activity dropped 40 percent to $5 trillion and in the OTC market the cross-border versus local pairing was 10 percent down to 55 percent.
The three biggest emerging market contracts were $15 billion each this year from negligible sums in 2010. On geographical distribution New York and London again took 75 percent, but the euro concentration increased sales in France, Germany and Denmark. In the Asia-Pacific, Japan edged out Australia, followed by Singapore and Hong Kong. Other sizable developing economy units included the Polish zloty, Thai baht, Hungarian forint, and Chilean peso. China and South Africa had $10 billion in agreements through early 2013, and into next year higher global rates could further boost participation. An exception to the negative exchange-listed trend has already been seen in Brazil, as companies that borrowed heavily abroad belatedly seek hedges. Many were unprotected or in bad derivatives bets in 2008 and had to be aided by government and outside liquidity lines but such contracts may not be renewed for the post-taper crisis.
