Non-bank financial institutions like insurance companies, mutual funds and pension funds account for more than 50 percent of daily turnover in the currency market, a survey of the foreign exchange market showed on Thursday.

Their share of the market reflects growing demand for hedging through foreign exchange swaps, the triennial survey by the Bank for International Settlements showed.

That backed up anecdotal evidence and trends from other surveys that large pension funds and insurance companies raised their hedging requirements to protect themselves from sharp currency fluctuations during the period between 2013-2016. That period saw the Bank of Japan and the European Central Bank embark on massive bond-buying programs along while the Federal Reserve started to tighten policy.

Derivatives are a key tool for asset owners as they often provide a cost effective hedge against sharp currency fluctuations, leading to lower costs and in most cases limiting the downside risks.

Average daily foreign exchange swap turnover with institutional investors as a counter-party rose to $278 billion by April 2016, a 79 percent increase compared with the 2013 survey, the BIS survey showed.

Prop Traders Hit

The rise in financial institutions’ share of trading contrasts with a drop for hedge funds and proprietary trading firms. Tougher regulatory rules have seen a decline in prop trading, especially by banks which have drastically cut down on currency trading on their own behalf.

Average daily spot turnover with hedge funds and proprietary trading firms as a counterparty was $200 billion in April 2016, a 29 percent decline compared with the 2013 survey. Trading in outright forwards and FX swaps also declined, by 29 percent and 37 percent, respectively.

In the past few years, a key driver of growth in the foreign exchange market has been the proliferation of prime brokers, hedge funds and high frequency traders. But hedge funds have suffered in the past while large banks have withdrawn from prime broking space, leaving currency markets often at the mercy of algorithmic traders.

“It is also important to note that one of the biggest game-changers in recent years has been the rise in non-bank market-makers in the FX market, significantly altering market structure as we know it,” said Dan Marcus, CEO of ParFX, an electronic trading platform.

Meanwhile, the share of trading between banks also rose for the first time since 1995, the survey showed. Banks often trade on behalf of customers such as companies and tend to actively deal through electronic platforms, such as EBS or Reuters dealing facilities.