Exchange-traded derivatives trading rebounds, says BIS

The combined value of trading in interest rate, stock index and currency contracts increased 16% to $197 trillion, the BIS said in its latest quarterly review. Exchange-traded interest rate transactions expanded 18% to $179.8 trillion, with contracts on short-term interest rates, including eurodollar, Euribor and euroyen accounting for much of the absolute increase – turnover increased 17% to $153.8 trillion.

“Activity was uneven across the major market risk categories, with trading in fixed-income contracts rising appreciably and business in stock index contracts declining marginally,” said the BIS in a statement.

Turnover in equity index contracts fell 3% in the first quarter to $16.7 trillion, with turnover in North America dropping 5% to $7.6 trillion and turnover in the Asia-Pacific region falling 9% to $5.2 trillion. However, turnover in European exchange-traded equity index contracts expanded 13% to $3.8 trillion. “The turnover of stock index contracts did not rise significantly when global equity markets faced downward pressure in January and February,” noted the BIS. “This may have reflected a retrenchment from risk-taking as rising geopolitical tensions exacerbated market volatility by overshadowing macroeconomic and corporate earnings announcements.”

The BIS also published the results of its semi-annual survey on global over-the-counter derivatives markets, and found that in the second half of 2002, gross market values – the replacement cost of all outstanding contracts – in these markets rose 43% to $6.4 trillion by the end of December. “Interest rate swaps accounted for the bulk of the expansion, which partly resulted from the sharp drop in swap yields from July to early October,” said the BIS.

The BIS found that the total estimated notional amount of outstanding contracts rose 11% to almost $142 trillion from its equivalent end-of-June 2002 number. The notional outstanding amount of OTC interest rate derivatives increased 13% to $101.7 trillion in the second half of 2002. The notional outstanding amount of OTC foreign exchange contracts increased 2% to $18.5 trillion, while the equivalent equity-linked contracts figure increased 4% to $2.3 trillion.