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Nikkei Markets

Singapore remains top Asian hub for FX, narrowly edging HK

New pricing engines at Citi, JP Morgan may help Singapore pull ahead in coming years

SINGAPORE (Nikkei Markets) -- Singapore retained the top spot in Asian foreign exchange trading, but its lead was narrowed to a whisker as volumes in rival financial center Hong Kong jumped 45% over the past three years.

The latest Bank for International Settlements survey showed FX trading in Hong Kong averaged $632 billion a day during April this year, up from $517 billion in 2016 when the previous survey was conducted as trades involving the Hong Kong dollar soared. In contrast, Singapore saw daily FX trading values rise by a smaller 22% to $633 billion over the same period.

Based on the latest data, Singapore continues to be the world's third largest FX trading center after London and New York, while Hong Kong remained fourth ahead of Tokyo, which saw the average daily value of trades fall 6% to $376 billion.

Singapore and Hong Kong are the two major financial hubs in Asia, providing funding and other services to the region's fast-growing economies and companies. While Hong Kong is the key Asian centre for investment banking and has a much larger stock market, Singapore has traditionally led the Chinese territory in areas such as wealth management, FX and commodities trading.

The BIS survey, which is carried out once every three years, was released late Monday in Europe.

Globally, the average value of FX traded daily rose 30% to $6.6 trillion from $5.1 billion in 2016. London was the dominant player among trading hubs, accounting for about $2.4 billion in daily trades or 43.1% of the total.

Despite the impressive gains made by Hong Kong, most industry players expect Singapore to regain the initiative once recently announced investments in FX trading systems come on-stream.

For example, Citi's electronic FX pricing and trading engine in Singapore is expected to "go live" in the final quarter of 2019, providing greater liquidity in the city-state as well as speeding up trade executions for clients who previously had to connect to systems in Tokyo. Besides Tokyo, Citi currently operates this trading infrastructure in London and New York.

J.P. Morgan also plans to establish an electronic engine in Singapore with support from the Monetary Authority of Singapore. According to a statement issued last month, J.P. Morgan's Singapore engine - its fourth after New York, London and Tokyo - will launch in early 2020.

J.P. Morgan is the world's largest currency dealing bank while Citi is number three, according to an annual poll by Euromoney, an industry publication.

Meanwhile, Hong Kong could see a tapering off in trades involving the Hong Kong dollar, which accounted for 3.5% of global FX transactions in April 2019 compared with 1.7% in 2016, according to BIS data.

Tommy Ong, managing director for treasury and markets at DBS Bank (Hong Kong), said that until about three months ago, there was a high volume of trades involving the purchase of U.S. dollars and sale of Hong Kong dollars to take advantage of the interest rate differential. Now that the U.S. Federal Reserve has begun lowering rates, the impetus behind the trades has diminished.

Mark Meredith, global head of electronic trading for FX and local markets at Citi, said additional Japanese holidays earlier in the year due to the Golden Week as well as the crowning of the new emperor contributed to falling yen volumes, as did a shift among traders towards more "geopolitically driven" currencies.

According to the latest BIS report, the share of FX trades involving the yen fell to 16.7% in 2019 from 21.6% in 2016.

--Kevin Lim and Benny Kung

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