US regulations on swap execution facilities (SEFs) are pushing FX trading volumes on to single-dealer platforms, according to research from consultancy Greenwich Associates.
While recent years have seen an increasing number of traders migrate to multi-dealer platforms, rules stemming from the Dodd-Frank Act are reversing this trend.
Greenwich’s research found that global FX trading volumes on multi-dealer platforms increased from a market share of 38% in 2007 to 44% in 2012. Single-dealer platforms saw a fall in popularity over the same period, with market share dropping from 49% to 42%.
However, US derivatives regulation means multi-dealer platforms will now have to register as SEFs, and Greenwich believes this will push traders back towards single-dealer offerings.
It projects single-dealer platforms will see steady or growing FX trading activity in the next 6-12 months, largely because many clients are seeking to minimise the near-term impact of regulation on their trading processes, particularly among financial services firms.
However, there may be a silver-lining for multi-dealer platforms, according to Kevin McPartland, head of the market structure and technology advisory service at Greenwich Associates.
“The good news for multi-dealer platforms is that we see this shift as a transitory phenomenon. In the long-term, the move to multi-dealer platforms will resume,” he said.
But, the regulatory burden of operating a SEF will trigger consolidation among multi-dealer platforms over the longer-term, with a small number of players expected to gain the most from the resurgence in multi-dealer volume growth, Greenwich said.