Average daily turnover in the UK foreign exchange market has increased by 47% in the last three years according to the Bank of England’s latest survey.

The Bank of England said in its fourth quarter bulletin that according to the three-yearly foreign exchange survey, average daily turnover in the UK was $2,726bn in April 2013, 47% higher than in April 2010.

The report said: “The United Kingdom recorded the largest increase in turnover and strengthened its position as the centre of FX activity, accounting for 41% of the global market in 2013, up from 37% in 2010.”

Turnover for over-the-counter interest rate derivatives increased by 9% over the same three-year period to $1,348bn per day.

One of the contributors to the increase in turnover was the jump in  the volume of Japanese yen trades during the latter part of the three-year period, which the Bank of England said was due to monetary and fiscal policy changes in Japan.

The proportion of turnover involving Japanese yen increased from 17% 23%. The report said: “This reflects the large increase in US dollar/yen trades to an average of US$516bn per day, more than double the level in April 2010.”

The US dollar remained the dominant currency with 88% of all trades in the UK FX market having one side denominated in dollars. The euro remained in second place but its market share fell from 44% to 37%.

Another reason for the increase in turnover was improvements in technology and increased demand for electronic trading. More than half of trading, 55%, was electronic but trading executed directly over the phone still remained 26% of total turnover.

The report said: “Although these advances in electronic trading continued to open access to the market for a wider range of FX market participants than in the past, contacts noted that the marginal benefit of further advances for end-customers had declined over the past three years.”

In a similar fashion to equities, the rise electronic FX trading venues has led to a fragmentation of liquidity. The report said: “Contacts noted that the market has become more complex as a result, with investors finding it difficult to judge the depth of the market as a whole or what volumes it would be possible to transact, at a given price.”

This month Caplin Systems launched a hosted, managed service to allow smaller banks to offer a single-dealer platform for foreign exchange, as such systems are expected to attract more volumes under new derivatives rules.

Paul Caplin, chief executive of Caplin Systems told Markets Media this month: “The FX market has been the most lightly regulated of the OTC markets and has continued to grow fast. As a result, many banks are continuing to invest in this asset class.”

The three-yearly survey was conducted by the Bank of England in April covering the business of 47 institutions (both UK-owned and foreign-owned) located in the UK.