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FX Market Metrics: New Findings Based on CLS Bank Settlement Data


  • Joel Hasbrouck
  • Richard M. Levich


Using a new and unique data set of foreign currency settlement instructions provided by CLS Bank, we investigate activity and liquidity in the foreign exchange market. In the major currency pairs, CLS settlement volume shares are similar to those reported in the BIS triennial surveys. They are also similar to shares computed from EBS trade data reported by Mancini, Ranaldo and Wrampelmeyer (2013) (MRW), but only for currency pairs that do not belong to the “UK Commonwealth” pairs, for which EBS coverage is limited. We estimate Amihud (2002) illiquidity ratios from CLS submissions and Olsen price records, and examine the correlations between these ratios and price impact estimates based on high frequency EBS data and reported by MRW. The correlation is 0.748, but with marginal statistical significance and only when the commonwealth pairs are excluded from the analysis. When the commonwealth pairs are included, the correlation drops to -0.130 (insignificant). We believe that, as with the volume estimates, this reflects EBS’ limited coverage of the commonwealth currency pairs. The common liquidity factor in our illiquidity ratios constructed from all major pairs is highly correlated, however, with the factor based only on non-commonwealth pairs, suggesting that liquidity factors constructed from EBS data may be good proxies for factors based on broader samples. Our data include numerical identifiers for counterparties to each trade which allows us to estimate market concentration by currency pair. We find that trading is more concentrated (across participants) in less actively traded currencies, which typically exhibit lower liquidity.

Suggested Citation

  • Joel Hasbrouck & Richard M. Levich, 2017. "FX Market Metrics: New Findings Based on CLS Bank Settlement Data," NBER Working Papers 23206, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23206
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    References listed on IDEAS

    1. Berger, David & Chaboud, Alain & Hjalmarsson, Erik, 2009. "What drives volatility persistence in the foreign exchange market?," Journal of Financial Economics, Elsevier, vol. 94(2), pages 192-213, November.
    2. Michael Moore & Andreas Schrimpf & Vladyslav Sushko, 2016. "Downsized FX markets: causes and implications," BIS Quarterly Review, Bank for International Settlements, December.
    3. Loriano Mancini & Angelo Ranaldo & Jan Wrampelmeyer, 2013. "Liquidity in the Foreign Exchange Market: Measurement, Commonality, and Risk Premiums," Journal of Finance, American Finance Association, vol. 68(5), pages 1805-1841, October.
    4. Michael R. King & Carol Osler & Dagfinn Rime, 2011. "Foreign exchange market structure, players and evolution," Working Paper 2011/10, Norges Bank.
    5. Richard M Levich & Frank Packer, 2015. "Development and functioning of FX markets in Asia and the Pacific," BIS Papers chapters,in: Bank for International Settlements (ed.), Cross-border Financial Linkages: Challenges for Monetary Policy and Financial Stability, volume 82, pages 75-132 Bank for International Settlements.
    6. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    7. King, Michael R. & Osler, Carol L. & Rime, Dagfinn, 2013. "The market microstructure approach to foreign exchange: Looking back and looking forward," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 95-119.
    8. Joel Hasbrouck, 2009. "Trading Costs and Returns for U.S. Equities: Estimating Effective Costs from Daily Data," Journal of Finance, American Finance Association, vol. 64(3), pages 1445-1477, June.
    9. Roll, Richard, 1984. " A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-1139, September.
    10. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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