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Trader beats banks in currency race

People are reflected on the glass as a board showing the Real-U.S. dollar and several foreign currencies exchange rates is seen in Rio de Janeiro, Brazil, May 9, 2016. REUTERS/Ricardo Moraes



Computerised trading firm XTX Markets Ltd. has come from out of nowhere to dethrone major banks including Deutsche Bank AG in the rankings of the world’s biggest spot currency traders.
The London-based proprietary trader is now the fourth-biggest trader, accounting for 7.6 percent of spot foreign exchange. It’s the first time an electronic specialist has displaced a bank in Euromoney Institutional Investor Plc’s annual survey.
Deutsche Bank has a 7.1 percent share, according to Euromoney’s 2016 survey. The German bank was second only to Citigroup Inc. in 2015. XTX’s name is a reference to a mathematical expression, and the firm was spun off from quantitative hedge fund GSA Capital last year.
XTX’s arrival from nowhere in foreign exchange is part of an evolution that has already made itself felt in the stock market, where banks are surrendering market making to companies that specialise in electronic trading. XTX says it relies on
quantitative research, machine learning and correlations between assets to generate prices.
Deutsche Bank was the biggest currency trader for nine years, a title it ceded to Citigroup in 2014. XTX Co-Chief Executive Officer Zar Amrolia helped build Deutsche’s fixed-income and currencies business. Alex Gerko, a former currencies quant trader at GSA Capital, is the other
Amrolia says XTX isn’t necessarily in competition with the dealers, which have traditionally formed the backbone of currency trading. XTX partners with large banks, allowing them to give their clients access to prices generated by XTX, he said.
“Competition is good and innovation is good,” he said. “What’s even better is partnership.”
XTX also makes markets in commodities, stocks and derivatives. Wall Street firms have retreated from such roles as regulations restrict that part of their business, making it more costly to operate. Citigroup is the top currency trader this year overall, including swaps and options.
The shift comes as the currency market has been embroiled by controversies, from benchmark fixing to attempts to cancel trades after a massive spike in the Swiss franc in 2015.
“Liquidity is diminishing from the bank side,” said Gerko, who predicted that other electronic trading firms will join the ranks of the biggest foreign-exchange traders in the coming years. Virtu Financial Inc. is also a major currency trader, though its profits from foreign exchange have come under pressure from growing competition.
“In general, banks aren’t in the investment phase or the growth phase,” Amrolia said.

The Citigroup Center is photographed Tuesday, Jan. 15, 2008 in New York. Citigroup Inc. lost almost $10 billion in last year's final three months, the largest quarterly deficit in the bank's 196-year history, and slashed its dividend as it recorded a mammoth write-down for bad bets on the mortgage industry. (AP Photo/Mary Altaffer)


Citigroup retains currency-trading crown 


Citigroup Inc. is the world’s largest currency trader by market share, according to a Euromoney Institutional Investor Plc survey, the third straight year the New York-based bank has led the rankings.
Citigroup took a 12.9 percent market share, followed by JP Morgan Chase & Co. and UBS Group AG. Deutsche Bank AG, which was second in the rankings last year, fell to fourth place, Euromoney said in a statement. Trading volume fell 23 percent from last year, and the top five banks’ share of the market plummeted to an all-time low.
“There have been unprecedented shifts in the overall rankings,” Euromoney said.
“The biggest change in the rankings this year is the decline of the combined market share of the top five global banks.”
The latest result highlights that regulations and the intensifying competition from non-traditional liquidity providers are hurting trading revenue among banks. Banks are losing businesses to non-bank liquidity providers.

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