One of five institutional traders executes their FX orders using non-bank liquidity.

That’s a healthy gain from the 16% of investors who used non-bank liquidity in 2015.

In a Greenwich Associates report, “Diversifying Liquidity: Attaining Best Execution in FX Trading,” the consultancy said that the increase is rooted in macroeconomic and regulatory-driven changes that are spurring a new wave of change in global FX trading.  As a result, investors are increasingly using sophisticated analytics to assess existing trading relationships and engage with new non-bank counterparties.

According to the Bank for International Settlements, trading in foreign exchange markets averages $5.3 trillion per day.

Greenwich analyst and market structure head Kevin McPartland said that the largest FX dealers in the world continue to execute nearly half of global buy-side FX volume and that the world’s largest money center banks will continue to play a huge role in facilitating the buy side’s FX needs. However, FX dealers are still adapting to new rules that change the economics of FX liquidity provision and find themselves increasingly competing for flow with non-bank liquidity providers.

“Investors should work to gain access to multiple liquidity streams and ways of interacting with that liquidity,” McPartland wrote in his report. “Maintaining deep relationships with a few bulge-bracket brokers is prudent, given the wide range of services they provide. But supplementing that with non-bank liquidity streams is now an important part of ensuring best execution.”

The report is based on data gathered from 1,633 top-tier users of foreign exchange at large corporations and financial institutions in North America, Latin America, Europe, Asia, Australia, and Japan between September and November of 2015.

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