NEW YORK – Secession-minded Scots and diverging interest-rate outlooks have benefited at least one part of financial markets. They have eased the recent drought in currency trading with some platforms witnessing record volumes.
CLS Group Holdings AG, the bank-owned firm that sits at the heart of global currency markets, processed more than 2 million payments Wednesday, the most since its creation in 2002, according to an emailed statement. The $10.1 trillion value of the transactions narrowly missed CLS’s record of $10.3 trillion set on March 19, 2008.
The rebound in activity will be welcomed by everyone who makes money from trading, including Wall Street banks and electronic platforms. Betting on currencies has picked up amid mounting evidence that interest rates will climb in the U.S. and the U.K. long before they do in Japan and the euro area. Thursday’s referendum on independence in Scotland has led to a spike in activity as companies and investors seek to protect themselves against a possible “yes” vote.
“The referendum concerns definitely created some volatility,” said Daniel Katzive, head of foreign-exchange strategy, North America, at BNP Paribas SA in New York. “The Fed is moving to rate hikes at some point, middle of next year, and with European policy moving in the opposite direction and Japan policy moving in the opposite direction, you’re going to see a real sustained dollar move higher.”
Electronic trading platforms such as FastMatch Inc. and EBS experienced spikes in activity last month. FastMatch had average daily volume of about $10 billion in August, compared with $3.5 billion in the same month a year ago. The venue also experienced record activity Wednesday.
ICAP Plc’s EBS platform saw its average daily volume rise to $85.5 billion last month from $78.7 billion a year earlier. Volume had fallen to as little as $68.5 billion in April, the lowest amount in data going back to 2006.
“Volatility certainly picked up,” Dmitri Galinov, chief executive officer of New York-based FastMatch, said in a phone interview.
Thomson Reuters Corp.’s venues had $107 billion of spot foreign-exchange trading in August, compared with $111 billion a year before. Bloomberg LP, the parent company of Bloomberg News, operates a rival trading platform.
Banks suffered from the trading drought as well. The 10 largest global banks presided over a 9 percent decline in sales from trading currencies in 2013, according to analytics firm Coalition Ltd.
Banks and their clients rely on CLS Group to process the payments for currency transactions. Without somewhere to settle trades, market participants risk losing money if a counterparty failed to fulfill its side of a transaction.
Currency volatility rose to a five-month high earlier this week as concern mounted that Scotland would vote to break away from the rest of the U.K. JPMorgan Chase & Co.’s Global FX Volatility Index reached 7.65 percent on Monday, its highest level on a closing basis since April 1.
CLS Group’s CLS Bank International subsidiary is designated as a systemically important utility for financial markets by the Federal Reserve.
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