Thursday 1 September 2016 4:00 pm

Foreign exchange trading flops as London loses market share, according to the Bank for International Settlements

Foreign exchange trading around the world has fallen over the course of three years, with London in particular losing market share. 

Global foreign exchange trading averaged $5.1 trillion (£3.8 trillion) a day in April, down from $5.4 trillion for the same month in 2013. It is the first time a fall has been recorded by the Bank for International Settlement's (BIS) Triennial Central Bank Survey since 2001.

A lack of spot trading, where foreign exchange trades are executed immediately, drove down the total activity, as it fell to $1.7 trillion per day from $2 trillion in 2013. 

The UK's share of the market also slumped, declining to 37 per cent from 41 per cent. That said, the UK was still one of five places where sales desks acted as intermediates in over three-quarters (77 per cent) of all foreign exchange trading. The other four rival financial centres were the US, Singapore, Hong Kong and Japan.

Read more: Sterling on the front foot as Jackson Hole approaches

The drop in activity comes as regulators take a tougher stance on banks' failings in the forex markets. For example, in 2014, the Financial Conduct Authority smacked five banks, including Citibank, HSBC and UBS, with fines totaling £1.1bn.

The city watchdog hit Barclays with a £284m penalty a year later. 

Also, 2013's figures were boosted by heightened interest in the Japanese yen, thanks to the Bank of Japan's stimulus measures at the time.

"When the results of the last BIS Triennial Survey were published in 2013, we were looking at a very different market landscape than we are today," added Dan Marcus, chief executive of ParFX. "In the past three years, there has been a significant shift in market structure, undoubtedly influenced by elements such as black swan events such as the Swiss National Bank's decision [on pegging currency], extended periods of low volatility and interest rates, and the continued prominence of disruptive latency-led misbehaviour."

Read more: Have we seen the end of volatility in the currency markets?

Meanwhile, the US dollar maintained its crown for the most dominant currency traded in 2016, compromise one side of 88 per cent of all trades in April. Emerging market currencies, including the renminbi, have increased in popularity, while market share slipped for the euro, yen and Australian dollar.

The 2016 survey was based off of data collected from almost 1,300 banks and other dealers.