* Trading volumes jump 29% in three years
* Spot trading declines; FX swaps hit 49% of volumes
* London's share hits 43%, up from 37% in 2016
* Interactive graphic on FX trading https://tmsnrt.rs/305PApu
* Interactive graphic on FX market share https://tmsnrt.rs/300r7lM(Adds analyst's comment)
By Tommy Wilkes and Saikat Chatterjee
LONDON, Sept 16 (Reuters) - Global daily currency turnoversurged to a record $6.6 trillion, with London shrugging offBrexit uncertainty to extend its lead as the world's dominanttrading hub, the Bank for International Settlements (BIS) saidon Monday.
Foreign exchange markets had been shrinking when the BISreleased its last triennial forex survey - considered the mostcomprehensive take on what is the world's largest financialmarket - in 2016 as banks and hedge funds pulled back fromtrading.
The latest edition, however, shows the market has bouncedback with a hefty 29% jump in daily trading volumes from the$5.1 trillion recorded in 2016, lifted by huge growth in FXswaps activity, the rise of new proprietary and high-speedtrading firms and more demand for emerging market currencies.
But the topline increase in daily global FX turnover hidesgrowing headwinds facing the industry. Among them is the rise ofFX swaps used by banks and investors to hedge their currencyexposure and which typically generate less revenue than plainold cash trading or highly complex and structured deals.
The survey by the BIS, a central bank umbrella group, showedthat spot, or cash, volumes continued to decline, slipping to30% of all daily volumes from a peak of 38% in 2013. FX swaps,meanwhile, gained market share and totalled 49% of all volumesin April 2019, up from 47% in the previous survey.
"Growth of FX derivatives trading, especially in FX swaps,outpaced that of spot trading," the BIS said.
The BIS collated the data from volumes reported in April bynearly 1,300 financial institutions across 53 jurisdictions.
In a separate survey, the BIS said the market forover-the-counter interest rate derivatives more than doubled to$6.5 trillion from $2.7 trillion in 2016, driven mainly "byincreased hedging and positioning amid shifting prospects forgrowth and monetary policy".
The BIS said improved reporting contributed to the rise.Britain recorded the biggest share of daily turnover, accountingfor $1 in every $2 of interest rate derivatives traded.
LONDON DOMINANCE
The survey also showed the United Kingdom extending itsdominance of the FX trading industry, defying sceptics who hadpredicted Britain's 2016 referendum vote to leave the EuropeanUnion would damage London's financial services sector.
Foreign exchange is the crown jewel of London's financialsector. Industry experts say the city's convenient time zone andits grip on FX trading infrastructure and personnel mean thesector could emerge unscathed from all the Brexit uncertainty.
The BIS said London's share of daily volumes rose to 43%, upfrom 37% in 2016, while the United States' share shrank to 17%from 20%. In Asia, growing volumes in Hong Kong offset weaknessin Singapore and Tokyo.
"This is testament to London’s long-standing global tradingrelationships, concentration of counterparties and continuedinvestment in technology infrastructure," said Dan Marcus, CEOof ParFX, an electronic spot FX trading platform.
"From a foreign exchange perspective, there is no doubt thatLondon remains a global centre of excellence."
Notably, mainland China registered an 87% increase intrading activity to become the eighth-largest forex tradingcentre, up from 13th in 2016.
EMERGING ASIA GAINS, YEN SHARE SHRINKS
The dollar remained the world's most dominantcurrency and was on one side of 88% of all trades.
There was little change in the ranking of the majorcurrencies and market shares, though lower volatility indollar-yen trading led to a drop of 5 percentage pointsin the Japanese yen's share to 17%, keeping it in third placebehind the euro.
Sterling's share stood at 13%, unchanged from threeyears earlier despite prolonged bouts of Brexit-inducedvolatility, remaining ahead of the Australian andCanadian dollars.
Emerging market currencies raised their share to 25%, upfrom 21% in 2016. The growth came from a jump in Hong Kongdollar trading, as well as in the Korean won,Indian rupee and Indonesian rupiah, the BIS said.
Despite Beijing's push to broaden international use of theChinese currency in recent years, the survey showed the yuanrising in line with overall market growth, leaving itwith a 4.3% market share behind the Swiss franc.
The Mexican peso and Turkish lira - the lattersuffering a currency crisis in 2018 - dropped in the rankings.
Banks trading with "other financial institutions" -including nonreporting banks, hedge funds, proprietary tradingfirms, institutional investors and official sector financialinstitutions - grew significantly to $3.6 trillion, 55% of theglobal total, BIS said.
That included growing activity by smaller regional banks -reflecting their strength in FX swap activity - and hedge funds.Institutional investor participation, however, declined to 12%of global FX turnover from 16% three years earlier.
(Reporting by Tommy Wilkes and Saikat Chatterjee in LondonEditing by David Goodman and Matthew Lewis)