MSIM holds half of FX options notionals among US funds

Morgan Stanley Investment Management (MSIM) has grown its footprint in foreign exchange options yet again, and now accounts for more than half the total volume of trades on the books of US mutual funds at the end of the fourth quarter, propelling Goldman Sachs into second place in the dealer rankings in the process.

Starting with a 21% market share in Q4 2020, the asset management arm of the US banking giant owned 50% of the FX options market by the end of last year. This represents a $39 billion notional position against a total of $78 billion held by all US mutual funds at the end of Q4 2021.

Virtually all of the manager’s book was concentrated in US dollar/renminbi pairs, with MSIM adding another $3 billion to its holdings in the pair over the quarter. The trades are almost entirely bought calls on USD/RMB.

As a result, Asia-Pacific non-G10 pairs were the only region that grew in notional volume over the year, while G10 and non-G10 Americas and Europe, the Middle East and Africa pairs all contracted, together with the FX options market overall.

Apac non-G10 pairs stood at $54 billion notional at the end of Q4, with MSIM responsible for 72% of that – all in USD/RMB – up from 59% a year ago.

The five largest trades for the quarter were again held by the manager. Four rolled over from Q3 and one new trade was added in top spot – a $4.2 billion USD/RMB trade with Goldman Sachs.

The US bank recorded a $9 billion increase in notional volume across all dealers in Q4, with $8 billion of that coming from MSIM, all in USD/RMB, helping it to move to second place in the dealer rankings.

Goldman’s growth now means it is separated by only $1 billion notional from JP Morgan in top spot, having a similarly narrow gap in FX forwards. BNP Paribas recorded the largest drop for the quarter – $6.8 billion – after losing a chunk of its MSIM business to Goldman and slid into third place.

All three top dealers owe a large part of their success to MSIM, with JP Morgan, Goldman and BNP doing 73%, 61% and 56% of their business with the manager in Q4, respectively.

Citi recorded the second-largest drop in Q4, $5.9 billion, and moved from fourth to sixth place. JP Morgan Asset Management, Voya and Wilshire Associates all reduced their business with the bank over the quarter.

Options purchased by managers now represent 86% of the market, up from 66% a year ago. Of those, calls have grown to $56 billion – driven by MSIM’s activity in USD/RMB – whereas puts have declined to $11 billion. Written options have been declining in tandem, with calls now sitting at $6 billion and puts at $4 billion.

About this data

The information used in this analysis comes from Nport-P filings to the US Securities and Exchange Commission. This is a relatively new form, introduced at the end of 2019, which requires mutual funds and exchange-traded funds to file monthly summaries of their portfolio holdings to the SEC. 

The filings include FX options transactions that were live at the time of the filing, and include details such as bank counterparty names, currencies, trade sizes and remaining maturity. The forms are filed to the SEC on a monthly basis, and the regulator makes the final filing of each fund’s quarter public 60 days after the end of that period. The filings are in a structured XML form, making it possible to download and parse the data for trends. 

It’s important to caveat the information. While these are pro forma regulatory filings to the SEC and should be accurate, mistakes and miscategorisations do occur. The data was cleaned and obvious errors excluded. For instance, trades where FX Markets was not able to identify the dealer or fund manager were excluded from their respective calculations. 

Information from these filings is also the basis for a new tool, Counterparty Radar, which allows users to search the filings information themselves to discover the most popular dealers and most active managers for FX forwards and options. We will track these stats every quarter, so please get in touch if something doesn’t look right, or to suggest other ways to present the data: [email protected]