Who’s Afraid of NBLPs? Banks – and the Feeling Isn’t Mutual
Posted by Colin Lambert. Last updated: May 22, 2025
The top concern for multinational banks from an FX perspective is competition from non-bank liquidity providers, a new survey from Acuiti has found, but the feeling’s not mutual it seems.
Rivalry with NBLPs beat regulatory compliance and technology integration on the list of biggest challenges banks face when trading currencies, despite flagging the second and third as significant and notable burdens that sell-side participants face. For non-banks, however, high operational costs and liquidity challenges came top on the list, ranking competition from banks in last place.
“For multinational banks, competition from non-bank liquidity providers was the top concern, reflecting the increasing dominance of market share by these firms.” the report, which surveyed executives from 68 firms across NBLP, banks and brokers, states.
The findings highlight a decade-old but rarely explicitly stated trend, which has seen non-bank players wrestle in on a growing part of the more than $2 trillion a day FX spot markets, chipping away at the market share (and profits) of banks. While banks are rarely keen to admit concerns about competition, NBLPs have been careful to emphasise their wishes to collaborate with banks and to be seen as complementary sources of liquidity rather than direct and hostile market share marauders. But with some estimates putting the slice of the NBLP pie as high as a third of the total, the cracks are becoming more difficult to paper over.
This was highlighted in a speech last November by Michelle Neal, then-head of the Federal Reserve Bank of New York’s Markets Group. Neal noted that while NBLPs are not expected to replace and displace banks in the near future, the nature of the relationship between banks and NBLPs is becoming less obvious. “An open question is whether [the growth of NBLPs] should be viewed as a challenge for bank dealers—or as a complement to them,” she said.
The increasingly public debate comes as volumes in currency markets boom and expectations for further growth pile up thanks to the return of volatility as geopolitical tensions, US trade tariffs and uncertainty about future interest rates spurs soaring activity.
For more information on the battle of banks and their prop trading frenemies, the BIS is likely to provide more colour in its triennial survey of FX markets later this year. Until then, we’ll just have to guess.
The Full FX View
The survey paints a picture of competition and increased spending on connectivity, but the reality is more like it is tapping into existing trends in the FX market. This is evident from findings that respondents expect volumes to rise and that APIs are “popular”.
Incidentally, on the subject of volumes, it is strange that the report states that FX volumes “have flatlined in recent years”, it is clear they haven’t. Looking at the semi-annual FX turnover surveys from seven local FX committees, spot turnover in the three years to October were up 26%, outright forwards were up 34.6%, FX swaps by a more modest 6.3%, and even FX options, which have been subdued for quite some time, were up a spectacular 82%.
Equally, without specifying if its spot, or total, FX trading, the report suggests that the FX
market “remains dominated by multi-dealer platforms”. Again, the definition is important – the report uses EBS as an example, which suggests it is talking spot only – but in total, the 2022 BIS report states that just 22% is executed via this method, lower than Voice Direct (28%) and Electronic Direct (single dealers and via API largely) at 35%. In the UK, 43% of spot volume is via electronic brokers or multi-dealer platforms.
What is a newer trend, as highlighted by Eva’s report, is the fluid relationship between banks and non-bank LPs – and this is likely to continue to evolve, but only if some NBLPs change their model. The outsourced LP model has been tried in FX before – Virtu and BNY Mellon many years ago springs to mind, and just doesn’t seem to work. This is probably because of the different nature of FX markets to equities where NBLPs are dominant, in FX the risk management profile is very different and speed is less of an issue (it’s still important as the Acuiti report notes).
Unless NBLPs are willing, as firms like XTX Markets have been, to actually become at least in part a risk warehouser, it is hard to see where these firms pick up significant business from asset managers and corporates, which, after all, is where the real value is at the institutional end of the market. To date, my conversations with smaller banks who have looked at, or attempted, a direct link up with a NBLP suggest the model still doesn’t work, largely because of deficiencies in executing large tickets and a limited currency pair range.
That does not mean, however, that NBLPs do not have the opportunity to grow, they clearly do, especially as more banks retreat behind their credit-obligated client base and shun the inter-dealer market. The fact is though, that most smaller banks that I talk to, are more open to getting into bed with a major bank, rather than an NBLP.
This leaves the non-banks with a choice – do they continue to focus on the ECN world where they can compete, to a degree, on speed and being top of book, or do they try to join the likes of XTX in that middle ground? Either way, the vast majority of NBLPs will only be doing so in spot and NDFs – and perhaps options.
Increasingly, while banks and non-banks eye each other warily, the sense is we are heading towards an increasingly bifurcated world, one where the non-banks dominate the competitive liquidity arena for smaller-sized tickets, but the banks, with their relationships and ability to take on larger risk, maintain a healthy dominance in the overall FX market.
Of course, there is one huge opportunity that could be very open to the non-banks – and that is if the banks themselves continue to push the broker model. That puts them in competition with the non-banks and makes it a technology game – in those circumstances, there is only one winner.
As volumes rise, the importance of systems and infrastructure investments is also climbing as higher activity levels need top-performing technology to support it. Desire to spend on underlying infrastructure is evident from Acuiti’s report, in which 82% predicted an increase in trading activity over the next year and 73% said they were planning to invest in their infrastructure, such as connectivity and computing power. The survey also reveals that 72% of respondents believe that digital currencies will have an impact on FX markets, with 64% expecting this to be significant or transformational.
Meanwhile, multi-dealer platforms remain to be the most popular way of accessing currency trading, despite their oft-called for demise. Other findings showed that Singapore has overtaken Tokyo as the preferred location for servers in Asia, with London and New York holding on to first and second place.
Elsewhere, unsurprisingly, the survey found that AI and machine learning is expected to be either a “game-changer” (by 17%) or have a “significant” impact (by 43%), with only 7% expecting the new technologies’ impact to be “minimal”.
