Fidelity FX forwards trades propel BofA to top dealer spot

Bank of America became the top foreign exchange forwards dealer for US mutual funds and exchange-traded funds in the first quarter of 2023, largely thanks to two trades from Fidelity with a total value of nearly $10 billion.

BofA was a counterparty to $98.4 billion of mutual fund trades in the first quarter, up 11% on the previous quarter. The growth was fuelled by its involvement in two of the five largest trades executed during Q1 – two euro/US dollar trades from Fidelity with value of $4.8 billion and $4.81 billion, respectively.

The US bank’s total market share held steady but its climb to the top of the rankings was partially a result of Fidelity’s decreased relationship with State Street. Over the course of the first three months of the year, Fidelity increased the amount of FX forwards business it executed with BofA by more than $14 billion, replacing State Street as its number-one dealer, according to industry filings collected and analysed by FX Markets’ Counterparty Radar service.

The filings are a snapshot of positions on managers’ books at quarter-end and do not cover trading that might be done during that period.

In the fourth quarter of 2022, State Street served as the counterparty for 46.5% of Fidelity’s trades by value. By the end of Q1 2023, however, that figure had shrunk to just 11.2%. As a result, State Street slipped from first place in the previous quarter to fourth, with $74.4 billion.

The biggest change in the dealer rankings saw Deutsche Bank rise from tenth to seventh place. The German bank reported an increase of $26.2 billion in the size of its FX forwards book, most of which came from Pimco.

In contrast, JP Morgan dropped two places to sixth as Vanguard reduced the amount it traded with the bank by $11 billion. Overall, JP Morgan reported a decrease of $22.2 billion in the size of its FX forwards book in the quarter.

Among the managers, Pimco almost doubled the size of its forwards book to $176 billion, most of which were G10 trades with Barclays, Deutsche Bank, HSBC, Morgan Stanley and UBS. This came after the manager nearly halved its book in Q4, taking the total value down to $97 billion.

Vanguard saw the largest overall dip in terms of volume share among mutual funds, falling from 41% in Q4 to 33% in Q1 this year. The Philadelphia-based asset manager decreased the size of its relationships with BNP Paribas, BofA and JP Morgan, with a total reduction in volume of $46 billion.

Overall, US mutual funds increased their use of FX forwards by 11%. Trading within the G10 currencies grew from $641 billion in Q4 to $713 billion in Q1 2023 and represented 79% of all trades.

Managers increased EUR/USD forwards trading by $27.8 billion in Q1 compared to the previous quarter. Additionally, there was a net increase of $25.3 billion in sterling/US dollar and a $9 billion net increase for Australian dollar/US dollar.

About this data 

The information used in this analysis comes from Nport-P filings to the US Securities and Exchange Commission. This is a relatively new form, introduced at the end of 2019, which requires mutual funds and exchange-traded funds to file monthly summaries of their portfolio holdings to the SEC.  

The filings include over-the-counter derivatives trades that were live at the time of the filing, and show details such as bank counterparty names, currencies, trade sizes and remaining maturity.

The forms are filed to the SEC on a monthly basis, and the regulator makes the final filing of each fund’s quarter public 60 days after the end of that period. The filings are in a structured XML form, making it possible to download and parse the data for trends.  

It’s important to caveat the information. While these are pro forma regulatory filings to the SEC and should be accurate, mistakes and miscategorisations do occur. The data was cleaned and obvious errors excluded. 

Notionals for equity options are not included in the filings, so have been calculated independently by Counterparty Radar. This involved multiplying the reported number of contracts by the number of shares per contract, and then multiplying this figure by the strike price.

The resulting strike-adjusted notional may differ from funds’ annual or semi-annual reports, which often use the spot price at time of filing instead of the strike. We chose to use the strike price to allow for quarter-to-quarter comparability – otherwise notional amounts might change solely due to changes in spot prices. The methodology is based on feedback from market participants, but if you have any comments please contact us, using the details below.

As the database is updated and improved periodically, data presented may not mirror information published in previous stories. Each story reflects the most accurate representation of data at the time of publication. 

Information from these filings is the basis for the new FX Markets service, Counterparty Radar, which allows users to search the filings information themselves to discover the most popular dealers and most active managers for a range of OTC derivatives. We will track these stats every quarter, so please get in touch if something doesn’t look right, or to suggest other ways to present the data: michael.paterakis@infopro-digital.com