The levelling-off in OTC derivatives | FT Alphaville

The levelling-off in OTC derivatives

Fresh from the Bank for International Settlements — lots and lots of derivatives statistics.

And according to the central bank’s bank, growth in the OTC derivatives market has rather slowed. Positions went up in the three years since their last Triennial survey (+15 per cent, or 5 per cent annualised) to $583,000bn, but that’s nothing compared to growth in the previous (2004-2007 period) or 131 per cent, or 32 per cent a year.

The notional amounts outstanding shown below:

It seems the market has yet to recover from the financial crisis. The Triennial results are, according to BIS, the result of a surge in positions until June 2008, followed by a decline after that. However, in one area there has been a pick-up — gross values.

Growth in gross market values, which BIS says provide a measure of the counterparty risk of these positions at prevailing market prices (or the current cost of entering equivalent trades), went up by 122 per cent to $25,000bn at the end of June 2010 . Compare that with growth of just 74 per cent during the previous period.

We’ll paraphrase BIS analyst Karsten von Kleist quoted by Dow Jones: the rise in gross values does reflect rising profits in OTC trades but also — crucially — how exposed counterparties are to each other. In other words the market value is also the amount a firm stands to lose if their counterparty fails to pay out on a contract.

Levelling off, but also moving on up.

Related links:
OTC derivatives volumes fell 4% in Ffrst half to $583 trillion – WSJ
LCH.Clearnet faces derivatives battle – FT Trading Room
A gazillion more CDS trades – FT Alphaville