OTC foreign exchange turnover in April 2022

Triennial Central Bank Survey

27 October 2022
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1. BIS Triennial Central Bank Survey

The BIS Triennial Central Bank Survey is the most comprehensive source of information on the size and structure of global over-the-counter (OTC) markets in foreign exchange (FX) and interest rate derivatives. The Survey aims to increase the transparency of OTC markets, helping central banks and market participants monitor global financial markets, and to inform discussions on reforms to OTC markets.

Activity in FX markets has been surveyed every three years since 1986, and in OTC interest rate derivatives markets since 1995. The Triennial Survey is coordinated by the BIS under the auspices of the Markets Committee (for the FX part) and the Committee on the Global Financial System (for the interest rate derivatives part). It has been supported through the Data Gaps Initiative endorsed by the G20.

This statistical release concerns the FX turnover part of the 2022 Triennial Survey that took place in April and involved central banks and other authorities in 52 jurisdictions (see page 15)1. They collected data from more than 1,200 banks and other dealers and reported national aggregates to the BIS for inclusion in global aggregates. Turnover data are reported by the sales desks of reporting dealers, regardless of where a trade is executed, and on an unconsolidated basis, ie including trades between related entities that are part of the same group.

The data are subject to revision. The final turnover data, as well as several special features that analyse them, will be released with the BIS Quarterly Review in December 2022. A separate survey on outstanding amounts as of June 2022 will be published in November 2022.2

2. Turnover in foreign exchange markets

Turnover in OTC FX markets averaged $7.5 trillion per day in April 2022 (Graph 1, left-hand panel, and Table 1).4  The 14% growth since the April 2019 Survey ($6.6 trillion per day) was the lowest triennial growth rate in all but two Surveys since 2004.5 This was despite data collection coinciding with heightened FX volatility due to changing expectations about the path of future interest rates in major advanced economies, rising commodity prices and geopolitical tensions following the Russian invasion of Ukraine. At the same time, Covid-19 restrictions in place in several reporting jurisdictions, including in China and Hong Kong SAR, may have suppressed turnover.

Turnover by instrument

Trading in spot and FX swaps continued to account for the bulk of FX turnover. At $2.1 trillion per day in April 2022, turnover in FX spot markets accounted for 28% of global turnover (all instruments), a slightly lower share compared with 2019 (Graph 1). For their part, FX swaps, which are typically short-maturity instruments (up to seven days; Table 2) used by market participants to manage funding liquidity and hedge currency risk, remained the most traded instrument, with turnover of $3.8 trillion per day. Their share in global turnover increased to 51% from 49% in 2019 and 47% in 2016. The share of trading in outright forwards remained unchanged at 15% of global turnover in the 2022 Survey. Turnover of FX options accounted for 4% of global turnover, and that of currency swaps for 2%. The latter typically have longer maturities than FX swaps or outright forwards and thus lower turnover.

Market-facing vs non-market-facing trades

The 2022 Survey introduced new dimensions to better identify "market-facing trades", ie deals with customers and other unrelated entities that contribute to price formation in the market. Specifically, the Survey breaks out "non-market-facing" trades consisting of (i) "back-to-back" trades, which are deals that automatically follow trades with customers to shift risk across sales desks; and (ii) compression trades, whereby dealers optimise their portfolios by replacing existing contracts with new ones to reduce notional amounts while keeping net exposures unchanged.6 In the 2022 Survey, these trades are separately reported as "of which" items (but without breakdowns by counterparty sector or currency).

In total, non-market-facing trades amounted to $895 billion, or 12% of the $7.5 trillion of global FX turnover in 2022. Across instruments, they accounted for 8% of spot turnover, 14% of FX swaps and 12% in outright forwards (Graph 2).

Turnover by counterparty

The growth in trading volumes between 2019 and 2022 reflected greater inter-dealer trading. Inter-dealer trading accounted for 46% of global FX turnover (Graph 3) in 2022, up from 38% in 2019. A further breakdown by instrument shows that inter-dealer trading accounted for 40% of spot turnover and 54% of turnover of FX swaps (Table 2). This uptick in inter-dealer trading may have reflected the elevated volatility in currency markets in April 2022. During such periods, inventory imbalances arising from trades with customers are more difficult to manage, creating the need to more frequently offload them in the inter-dealer market. Inventory imbalances may also be passed among affiliates of the same dealer bank, resulting in greater cross-border trading and related party trades (Table 3).

Conversely, the volume of trading with "other financial institutions" – a customer group that includes non-reporting banks, hedge funds and proprietary trading firms (PTFs), institutional investors, and official sector financial institutions – changed little between 2019 and 2022. At $3.6 trillion per day in April 2022, turnover with this sector accounted for 48% of global turnover, down from 55% in 2019.

Within this "other financial institutions" customer group, trading with non-reporting banks, mainly comprised of smaller regional banks, remained dominant (Graph 3, right-hand panel). Daily turnover with this subsector averaged $1.6 trillion (Table 3) or 22% of global turnover in 2022, down from 24% in 2019. Similarly, trading with institutional investors declined in relative terms for the third consecutive survey period. At $847 billion per day in 2022, their share in global FX turnover fell to 11% from 12% in 2019 and 16% in 2016. Trading with hedge funds and PTFs decreased even in absolute terms over this period, from $593 billion to $514 billion, or 7% of total turnover.

The share of trading with non-financial customers continued its downward trend. It accounted for 6% of total FX market turnover in 2022, down from 7% in 2019 and 9% in 2013.

Turnover by currency and currency pairs

The US dollar remained the world's dominant vehicle currency. It was on one side of 88% of all trades in April 2022, unchanged from the previous survey (Graph 4 and Table 4).

The next three most traded currencies – the euro, the Japanese yen and the pound sterling – retained their relative rankings. The euro continued to be the world's second most traded currency, on one side of 30.5% of all trades in April 2022 (down slightly from 32% in 2019). The Japanese yen and sterling were on one side of 17% and 13% of all trades, respectively, virtually unchanged since the 2019 Survey.

The Chinese renminbi exhibited the biggest increase in market share since the 2019 survey, being on one side of 7% of all trades in 2022 (up from 4% in 2019). As a result, the renminbi became the fifth most traded currency, up from eighth place three years ago.

Some other currencies saw also relatively large changes in market share. While the Hong Kong dollar remained the ninth most traded currency, its share in global FX turnover decreased from 3.5% in 2019 to 2.6% in 2022. By contrast, the shares for the Canadian dollar and Singapore dollar increased noticeably.7

Geographical distribution of turnover

FXtrading continues to be concentrated in major financial centres. In April 2022, sales desks in five locations – the United Kingdom, the United States, Singapore, Hong Kong SAR and Japan – intermediated 78% of all FX trading (Table 6, "net-gross" basis).8 The United Kingdom remained the most important FX trading location globally, with 38% of global turnover (from 43% in 2019).

While the rankings of the major trading centres remained unchanged since the 2019 Survey, there were changes in their relative shares in global turnover. The share of trading reported by the United States increased from 17% to 19%. The growth of activity among the leading Asian financial centres diverged. Turnover in Singapore grew at a higher rate than the global total, while that in Hong Kong SAR and Japan grew more slowly. Turnover in Singapore thus rose to 9% of global turnover in 2022, from 8% in 2019, while that in Hong Kong SAR declined to 7% from 8% and that in Japan to 4% from 5%.9

The share of cross-border trading in total FX turnover was 62% in April 2022, up from 56% in 2019 and closer to the 65% share in 2016 (Table 2). Among reporting dealers more specifically, the bulk (68%) of the $3.5 trillion per day in inter-dealer trading was cross-border (Table 3).

1 One jurisdiction has submitted partial data; final data will be published in the December BIS Quarterly Review.

2 The BIS semiannual OTC derivatives statistics, which capture outstanding amounts, are compiled with data from 12 major reporting jurisdictions that cover an estimated 90% of the global total. Every three years, additional data from all jurisdictions that participate in the Triennial Survey are included.

3 Figures on a "net-net" basis are corrected for local and cross-border inter-dealer double-counting. Figures on a "net-gross" basis are corrected for local inter-dealer double counting only.

4 Exchange rate movements between 2019 and 2022 had a minor impact on the growth in average daily turnover (   Table 1). The growth was also similar to that which can be derived from more frequent regional surveys run by local foreign exchange committees (FXCs) in Australia, Canada, Hong Kong SAR, London, New York, Singapore and Tokyo. There are some methodological differences between the Triennial Survey and these surveys. Importantly, the Triennial collects data based on the location of the sales desk, whereas some regional surveys are based on the location of the trading desk.

5 Turnover at sales desks in Russia, which accounted for less than 1% of total turnover ("net-gross" basis;    Table 6) in 2019, were not included in the 2022 Survey. At the same time, turnover in the Dubai International Financial Centre was included for the first time in 2022, yielding more complete coverage of turnover in the United Arab Emirates.

6 Compression trades play a marginal role in the FX market since few FX OTC derivatives are cleared with central counterparties.

7 While FX markets globally can be characterised as OTC markets, a large share of trading in the Brazilian real and, to a lesser extent, the Indian rupee is done via exchange-traded derivatives (XTD) (see    Table 4). Taking XTD markets into account would boost the relative ranking of both currencies.

8 The figures in    Table 6 are on a "net-gross" basis, which corrects for double-counting of local (ie in the same country) inter-dealer positions but not for double-counting of cross-border inter-dealer positions.

9 The share of trading in Hong Kong SAR was probably affected by the Covid-19 restrictions in the first half of 2022 that dampened economic and financial market activities.