MSIM cuts third of FX options volume amid market contraction

Counterparty Radar: Manager pares $13bn of USD/RMB trades, deals blow to BNP’s market share


Morgan Stanley Investment Management (MSIM) reduced its foreign exchange options book by a third in the first quarter of the year as the broader market of US mutual funds trading the instrument contracted by 26%.

The move dealt a serious blow to BNP Paribas, which lost almost 90% of its volume over the period, falling from third position in the dealer rankings in Q4 2021 to eighth in Q1 2022.

The overall space shed $20 billion of volume in the quarter, settling at roughly $58 billion. That is less than half its volume in Q1 2020. The information is based on disclosures made by US mutual funds to the US Securities and Exchange Commission, which have been gathered and analysed by FX MarketsCounterparty Radar service.

MSIM slashed $12.9 billion in US dollar/renminbi bought calls in the first quarter, but nevertheless remained top of the manager rankings, having $26.1 billion of those trades still on its books.

Other managers also reduced their books, Invesco halving its books over the quarter with a $4 billion cut, mostly in Asia-Pacific and Europe, the Middle East and Africa across a range of currency pairs. The firm dropped to fourth position from third in the previous quarter. Franklin Templeton sawed off $3 billion in the Americas in US dollar/Mexican peso trades, its volume contracting by two-thirds over the quarter, and falling from fourth position to eighth.

BNP’s $10 billion markdown was the largest for the second quarter in a row, leaving the firm with only $1.2 billion in Q1. While MSIM was responsible for $6.3 billion of the drop, there was a wider move away from the dealer as remaining manager relationships netted out at negative $3.8 billion, with large reductions coming from Transamerica – also in USD/RMB pairs – as well as PGIM and Brighthouse Financial. While the firm managed to win all of Stone Ridge’s business from Morgan Stanley, its losses have been mounting ever since it peaked in dealer rankings in the second quarter of last year.

Underscoring the dire quarter for dealers amid a contracting market, Barclays’ $415 million gain was the largest over the quarter. The UK bank added Lord Abbett as a new client, though it did not make the top 10 dealer list.

G10 pairs were the only ones to grow, euro/US dollar and Australian dollar/US dollar crosses being popular, with Voya and T Rowe Price adding $1.6 billion and $1.2 billion, respectively, to the space. At $15.3 billion, the region is still dwarfed by the $37 billion Asia-Pacific market, even after its $16.9 billion loss over the quarter.

Options purchased by managers now represent 87% of the volume, having steadily risen from 60% in Q1 2020. Purchased calls make up almost three-quarters of the market, despite falling $14.7 billion to $41.7 billion. Purchased puts declined to $8.8 billion, dropping below the $10 billion threshold for the first time since Q1 2020 due to reductions from PGIM, Invesco and Franklin Templeton. Written options have continued to decline, with calls now sitting at $3.7 billion and puts at $3.9 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]

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