The foreign exchange and over-the-counter derivatives markets in the United Kingdom

Quarterly Bulletin 2001 Q4

Published on 01 December 2001

By Sarah Wharmby of the Bank’s Monetary and Financial Statistics Division.

In April this year, the Bank of England conducted its triennial survey of turnover in the UK foreign exchange and over-the-counter (OTC) derivatives markets, as part of the latest worldwide survey coordinated by the Bank for International Settlements. This article sets out the results of the UK survey and compares them with previous surveys and results for other major centres.

The main findings of the UK survey are:

Average daily spot and forward foreign exchange turnover in April 2001 was $504 billion per day, 21% lower than the $637 billion per day recorded in 1998 (equivalent to a fall of 15% at constant 2001 exchange rates). This fall in turnover has taken place against a backdrop of decreasing global activity, which declined by 19% over the same period to $1,210 billion per day. These results contrast with previous surveys, which had consistently shown a strong increase in foreign exchange business.
The decline in UK activity was more than accounted for by the fall in inter-dealer business from $530 billion to $341 billion. This is consistent with the increased role of electronic broking systems, particularly in the spot market where turnover fell by 30%.
Underlying customer business in the foreign exchange market as a whole grew by 52%.
The euro accounted for a larger proportion of the market in London than the Deutsche Mark did in 1998, but less than the sum of all the legacy currencies.
Average daily turnover in OTC currency and interest rate derivatives was $275 billion, 61% higher than the $171 billion recorded in the previous survey in April 1998. This was driven by an increase in OTC interest rate swap business, and reflects the increasing importance of swaps as a trading and pricing benchmark. Global OTC derivatives activity also increased, by 53%.
The United Kingdom has retained its position as the world’s largest centre for foreign exchange and OTC derivatives business, accounting for 31% and 36% of the global foreign exchange and OTC derivatives markets respectively.