BIS says derivatives trading remains buoyant

The combined turnover in notional amounts of interest rate, equity index and currency contracts rose to $484 trillion from April to June 2006, up from $429 trillion in the first quarter. The slowed growth reflects the fall in world markets from mid-May, when risky assets were sold off, BIS said.

Trades moved towards bonds and equity index contracts where turnover by notional amounts in stock index contracts rose to a new high of $46 trillion. Growth was particularly strong in English-speaking countries, above all Canada (47%), and the US, the UK and Australia (all 19%).

Trading remained active in short-term interest rates, showing a 15% increase in contracts due to global interest rate hikes. The greatest growth was in short-term yen interest rate contracts ahead of the rate hike by the Bank of Japan in July. Turnover in futures increased by 46% and in options soared by 130% in the second quarter, ending the period of slow derivatives activity while the interest rate had remained close to zero for over five years.

The fastest growth in the second quarter was the 21% increase in turnover of foreign exchange contracts, caused by volatility in the US exchange rate. Yen foreign exchange contracts increased by 23% and euro contracts listed on the Chicago Mercantile Exchange by almost a third.

Despite the slowed growth during the second quarter, Christian Upper, who compiled the figures, emphasised the positive: “This is still growth; it’s a solid stabilisation of growth, which shows a continuing expansion in the use of instruments to hedge risk.”