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By Jamie McGeever and Jessica Mortimer
LONDON, Nov 7 (Reuters) - Daily spot foreign exchangetrading volumes on Thomson Reuters dealing platformsfell in October, reflecting a broad decline in turnover acrossthe world's largest financial market, company data showed onThursday.
The decline in volume follows the Federal Reserve's surprisedecision not to start withdrawing its monetary stimulus, andcomes against the background of the global investigation intoalleged FX manipulation rates.
The average $97 billion traded across Thomson Reuters' maintrading services, including Dealing and Matching, was the lowestsince the data series began almost four years ago in January2010.
Average daily spot volumes were $97 billion in October, down11.8 percent from $110 billion in September and down 19.1 percent from $120 billion the same month last year.
On FXall, the electronic foreign exchange platform purchasedby Thomson Reuters last year, average daily volumes fell 4.5percent to $106 billion in October from $111 billion inSeptember. Volumes were up 12.8 percent from October 2012 whenthey were at $94 billion.
Earlier this week, EBS, which competes with Thomson Reutersin the FX dealing business and is owned by ICAP, saidvolumes fell 5 percent to $77 billion in October from $81.2billion in September and were 17 percent down on the year.
EBS is the leading liquidity provider for the euro, the yen and the Swiss franc.
Thomson Reuters platforms provide more liquidity for othercurrencies such as the British pound and the Australian and Canadian dollars.
"The more important factor for the reduction in volumerecently was the Fed shocking the markets, forcing investors tolose confidence in their read of the Fed," said one hedge fundmanager.
The Fed was widely expected to announce in September itwould begin withdrawing its $85 billion a month bond-buyingstimulus, perhaps by as little as $5 billion or $10 billion.
But it chose to delay the so-called "taper", citing concernsabout the rise in market-based interest rates over the summerand uncertainty that the economic recovery is strong enough towarrant such a move.
This surprised most market participants and raised doubtsabout the path for U.S. monetary policy. The volatile and choppytrading conditions in the following weeks helped depress marketvolumes, not just in FX.
Average daily traded volume on Britain's FTSE 100 stockmarket was 6 percent lower in October than the month before.
And although there was a spike in October, traded volume inGerman Bund futures contracts had been falling for the previousfour months. October's daily average was still 25 percent downfrom May.
On top of that, banks are facing tighter regulation ingeneral, such as being forced to hold more capital, which makesthem less willing to take risks.
INVESTIGATION
There's little direct evidence the ongoing global probe intoallegations of currency rate rigging is hitting FX tradingvolumes, although it's something that market participants aresensitive to.
"There is a new theme in the markets, and it's regulatoryintervention," said one London-based portfolio manager at a firmwith over $250 billion of assets under management.
"We've not got to the stage yet where volumes have droppedmassively on (this) ... but there's definitely a reticence onparts of the banks to (trade) more than they have to," he said.
Thomson Reuters and EBS declined to break down the dailyaverage flow data. This makes it difficult to ascertain whetheractivity surrounding any of the daily fixings - which serve asbenchmark rates in the self-regulated currency market - wasaffected specifically.
A clutch of traders at some of the world's biggest bankshave been put on leave or suspended amid a growing global probeinto potential manipulation of the $5.3 trillion-a-day foreignexchange market.
Barclays, Citigroup, Standard Chartered, JPMorgan, UBS and Royal Bank ofScotland have all benched traders as regulators in theUnited States, Europe and Asia investigate whether benchmarkforeign exchange rates have been manipulated.
Alan Wilde, currency and bond portfolio manager at BaringsAsset Management, which has $58 billion of assets undermanagement, said any observations about falling volume and thefixings probe is "just conjecture".
"It has been a tough year for investors to make money fromFX and this reduced appetite to take positions will have animpact on dealing volumes and hence liquidity," he said.
The departures leave big holes at many FX desks in London,the beating heart of the global FX market, accounting for some40 percent of turnover.
