BIS: OTC derivatives notionals rise 15% in the first half of 2002

The BIS's third quarter review of derivatives markets revealed that OTC interest rate products – forward rate agreements, swaps and options – led the way, with notional outstandings rising 16% to $90 trillion. US dollar-denominated swaps, the largest sub-category, grew 14% to a little under $22 trillion, largely due to the hedging of pre-payment risk by mortgage-backed securities investors.

The notional volume of OTC foreign exchange derivatives outstanding grew 8% to $18 trillion; the largest increase was the options sub-category's 39% growth, which the BIS attributed to high volatility in major currency pairs, especially the euro/dollar. OTC equity-linked derivatives notional outstanding grew 18% to $2.2 trillion. OTC commodity derivatives notional outstanding grew 30% to $777 billion.

The BIS also released third quarter figures for listed products. Trading in exchange-traded derivatives grew 14% in that period to $192 trillion notional outstanding. Trading in exchange-traded interest rate contracts expanded 14% to $174.4 trillion. Turnover in contracts on short-term interest rates in eurodollar, Euribor and euroyen rose 12% to $151.3 trillion. Government bond derivatives rose 29% to $23.1 trillion.

The BIS attributed the growth to pessimism about corporate earnings quality and economic growth prospects. Turnover in European interest rate products was particularly high, partly accounted for by downward pressure on European equity markets. In the US, growth was driven by the hedging activity of US government-sponsored agencies hedging mortgage pre-payment risk.

Exchange-traded equity index contract turnover in the third quarter rose 13% to $17.4 trillion, and was strongest in Europe.