Electronic trading has transformed foreign exchange into a $4 trillion a day flow monster, delivering record revenues to those with scale. But by focusing on building their own internal platforms, banks have left themselves open to attack from the high-frequency traders, who pick them off at will and force them to hold more risk. Now the banks are fighting back. Hamish Risk reports.

The dominance of the top-three FX banks is being challenged by the chasing pack of dealers. It isn’t just a case of luring clients onto their internal trading platforms. Clients want different things, and multi-dealer exchanges are beginning to prosper. Tom Osborn reports.

When Euromoney calls to book appointments with the heads of the top 10 FX banks before the results of this year’s poll appear, the typical response from their press officers is: “Can we get back to you, he is travelling in Asia right now.” This tells you all you need to know about growth in the foreign exchange markets, with Asia as its new frontier.

The Euromoney Foreign Exchange survey is the most comprehensive quantitative and qualitative annual study available on the FX markets. The FX market is an unregulated OTC market and there are no reliable, aggregated, global statistics made available against which to benchmark the survey outside the tri-annual BIS studies. The survey also excludes a number of categories of market participant, which means that the total volume reported by the poll is not and not intended to be an accurate reflection of total global foreign exchange activity. Euromoney aims to capture client price-taking activity only. However, given the geographical and participant-type spread represented by the poll, Euromoney believes that the survey provides an accurate proxy for trends in the major areas of activity polled and accurately discerns the relative performance of the banks ranked, particularly over periods of two or more years.

The results of Euromoney’s 2011 annual benchmark survey of the global foreign exchange industry show that competition is intensifying among a group of six-to-eight leading banks, as electronic trading continues to gain in importance.

European banks benefit from euro introduction; Spurs consolidation of market share

Technology has changed the game forever. And it is costing the banks dearly. They are returning to an old idea to defend their corner from the predations of high-frequency traders. The answer to the erosion of business may lie in a trick from the equities market: dark pools. Is PureFX back on the table?

The bank has leapt 43 places in the Euromoney FX survey since 2009. It earns the title of ‘most improved market share’ after rising four places this year. Can the momentum continue? Hamish Risk finds out

Derivatives Week

The EUR has problems, the USD falling, gold and silver soaring -- can this be a full-blown monetary crisis, or a controlled change in the world monetary system?

S&P has now followed the Chinese Dagong in questioning the AA rating of Treasury debt, another step in the loss of the “exorbitant privilege” of owning the reserve/trading currency.

The South-east Asia city state could well become the next hub for offshore renminbi trade settlement, a move that would help ease China’s FX reserve burden. However, Beijing still needs to see more onshore exporters trading in renminbi.

It is not just China that wants its currency to gain strength against the US dollar. In Vietnam, the issue of currency devaluation affects everything because lack of confidence in the dong pushes investors out of cash into other assets such as gold and real estate. And with good reason: the 8.5% devaluation of the dong at the start of this year was a harsh blow to savers in the local currency. As Tom Tobin, chief executive of HSBC Vietnam, says: “Banks are offering over 14% on deposit rates, but that’s what you have to do to get people to hold dong. Why would you want to hold a currency when it can depreciate 9% on the spot?” The government has been cracking down on Vietnam’s ever-popular gold-trading floors since January this year, fearing that investors’ preference for the metal and for dollars is putting further pressure on the dong. There’s little evidence that the plan is working yet, though. After the February devaluation the dollar rate rose to D20,693, yet unofficial rates crept higher to almost D22,000.

Providers and clients in the key Asian markets discuss the effects of the region’s growing influence and importance, tradeability of the renminbi and the developments that are bringing cutting-edge cash management services.

Clampdown on black market FX trade; Long-term fears about default

Monetary policy seen as insufficient; Macro-prudential policies also required