© Reuters. FILE PHOTO: 4 thousand U.S. {dollars} are counted out by a banker counting foreign money at a financial institution in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking

(Corrects title of XTX Markets in sixth paragraph)

By Saikat Chatterjee

LONDON (Reuters) -Prime international banks consolidated their stranglehold on the $6.6 trillion a day international overseas trade market final yr, with new entrants ceding floor, a broadly watched business survey confirmed.

With a mixed 30% share of the market in 2020, JP Morgan, UBS and Deutsche Financial institution (DE:) took the highest 3 positions within the broadly watched Euromoney FX survey, as buyers made a beeline for distributors providing extra digital buying and selling and algorithmic instruments in a yr when the COVID-19 pandemic disrupted conventional buying and selling preparations.

A surge in market volatility because of the pandemic final March coincided with a disruption to buying and selling, historically rooted in massive buying and selling flooring at banks and hedge funds in Hong Kong, London and New York, as workplaces closed and staff had been despatched dwelling.

That led to an increase in digital and algorithmic buying and selling and banks who had closely invested within the area reaped wealthy rewards.

“Our funding in know-how by way of our digital and automatic buying and selling enterprise was essential,” stated Chi Nzelu, head of macro eCommerce at JP Morgan, which additionally held the highest spot for 2019. “Algo buying and selling additionally got here to the fore final yr, serving to to handle value and entry liquidity effectively.”

The resurgence of the highest banks comes at the price of new entrants like XTX Markets, a darkish pool operator, which had climbed steadily up the rankings to face in third place in 2019, providing deeper buying and selling liquidity and sooner execution services.

The London-based market maker slipped to fourth place and in addition ceded market share.

The pandemic-induced volatility early final yr widened bid-offer spreads to ranges not seen for the reason that international monetary disaster, whereas decreasing market depth even in foreign money pairs thought-about to be liquid.

Whereas extra widespread in fairness markets, transacting by way of computer systems and high-powered algorithms has change into more and more well-liked in foreign money and bond markets in recent times with the pandemic accelerating the pattern.

Banks have made heavy investments in algorithmic buying and selling with high establishments providing a wide range of options for buying and selling currencies. For instance, “adaptive algos”, provided by many banks in current months, can change their buying and selling kinds routinely relying on fluctuating market circumstances.

A research by Coalition Greenwich final month discovered the disruptions attributable to the pandemic could have long-term results on the behaviour of FX market individuals.

Greater than 40% of monetary FX merchants employed algo buying and selling in 2020 with practically the identical share anticipating their utilization of FX algos to extend within the subsequent yr, the research stated.

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