The five biggest dealers in global foreign exchange trading collectively ceded market share to rivals last year. With an aggregate share of 51% of global FX trading volume in 2014, Citi, Deutsche Bank, UBS, Barclays, and J.P. Morgan still maintain a dominant grip on the market, according to Greenwich Associates. However, that share was down from 53% in 2013.

This shift was among the key findings of a recent Greenwich Associates study of 1,612 top-tier users of global foreign exchange. Results of this study were released in a report, Top FX Dealers Still Dominate but Cede Market Share to the Middle.

“While the loss of market share appears small, two percentage points in a market with turnover measured in the hundreds of trillions is a big deal,” said Greenwich Associates consultant Woody Canaday.

Trading business lost by the top-tier dealers was picked up by dealers ranked 6-10 in terms of market share, which as a group captured 24% of global trading volume in 2014, up from 22% in 2013, and to a lesser extent by dealers ranked 11-20, which saw aggregate share inch up from 14% to 15%.

Technology is playing an outsized role in dealers’ competition for market share. Three-quarters of client volume in FX is done electronically, a ratio that has risen consistently since before the financial crisis.

The movement of trading business to multidealer electronic platforms has broadened the market. The average number of dealers used for FX trading by buy-side clients has increased to more than eight in 2014 from 6.5 as recently as 2009. This level of counterparty expansion would not have been possible in a purely bilateral market.

The top four dealers have a market share in electronically traded FX that is on average 45% higher than their share in the voice-only market. In contrast, dealers #5 through #7 have an average voice market share 5% greater than their e-trading share, while dealers 8–10 have a voice share that is one-third higher than their electronic share.

“To be globally dominant in FX, an electronic trading franchise is of critical importance,” said Kevin McPartland, head of market structure and technology research at Greenwich Associates. “Connectivity to clients and multidealer platforms, aggressively priced streaming quotes, trading analytics, and a top-notch single-dealer platform are all needed.”

The dominant positions of the top FX dealers remain secure. The scale needed to crack the top 10 means we won’t soon see any new entrants in the FX bulge bracket. Even with the collective volume traded by alternative liquidity providers having a greater impact on the market, clients continue to need the global reach of the largest money-center banks.

Nevertheless, disruption to FX market structure, combined with an increasingly volatile currency market, is making room for the bottom half of the top 10 to wrestle away share slowly but surely both on the screen and on the phone.

Multi-dealer platforms will increasingly become the primary place to transact—similar to Amazon’s amazing evolution into the place from which we buy everything. “Sure, Amazon hurt local merchants at first,” said McPartland, “Ultimately it allowed a new breed of local business to sprout up in a way that was never possible when bricks and mortar were required.”

Featured image by Sergio Martínez/Dollar Photo Club