BIS Quarterly Review Presumes Electronic Trading Market Share Climbs Based On Anecdotal Reports

BASLE--The electronic broking industry has increased its market share "substantially" the Bank of International Settlements said last week in its quarterly review. However the BIS would not quantify what the new market share was.

"In April 1998 [at the time of the last BIS triennial review] about 40 per cent of spot market transactions in London were dealt with through electronic brokers. According to market sources this share increased substantially in 1999," says the report.

It then says that; "Globally [ie not just the spot market] about one third of all transactions involving the dollar, the yen and the euro are said to be currently effected through electronic brokers.

"Given that electronically brokered transactions cover only a part of FX markets it would be misleading to use them as a proxy for total turnover."

Meanwhile in its review of spot and forward FX trading volumes in Q4, 1999 the BIS suggests that the euro has replaced the mark -- but with no subsequent loss of marketshare.

The reported share of euro/dollar trading in October 1999 was about the same as that of dollar/DM trading in April 1998.

However, the share of euro/yen trading accounts for a smaller marketshare than DM/yen. "In the view of many market participants, the low liquidity of the euro/yen market has been a major disappointment," the report said.

The BIS concluded -- unsurprisingly -- that the euro has replaced the Deutschmark and its use was confined mainly to eastern Europe.

The aggregate turnover of exchange-traded financial derivatives monitored by the BIS contracted by 17% in the fourth quarter of 1999 (to $76 trillion), the lowest level since the fourth quarter of 1996.

The report also sheds some light on trading conditions in foreign exchange, leading up to the millennium date change.

The dominant influence in the fixed income and currency market segments appears to have been the effort by market participants to pare down their positions to a minimum ahead of the new millennium.