The latest Bank for International Settlements’ (BIS) latest semi-annual release of OTC derivatives statistics shows that notional volumes rose to $640 trillion at the end of June 2019, the highest level since 2014 and up from $544 trillion at the end of 2018.

The BIS says part of the increase reflects a seasonal pattern evident in the data since 2016, specifically, notional amounts outstanding have tended to decrease in the second half of a year, followed by a rebound in the first, generating a sawtooth pattern. Factoring out that pattern, notional amounts have grown year on year by around 7% on average since end-2017, the Bank adds.

The data show that interest rate derivatives accounted for the bulk of notional amounts outstanding ($524 trillion or 82%), and have driven the upward trend evident since 2016. This upward trend contrasts with the significant contraction observed in 2014 and 2015.

Notional amounts outstanding for FX derivatives, which had not experienced a similar downward correction in the early 2010s, have also been trending upwards in recent years; their notional amounts totalled $99 trillion at end-June 2019.

In contrast, notional amounts of other derivatives have followed a trend decline since the financial crisis of 2007–09, driven almost entirely by credit derivatives, of which 93% were credit default swaps at end-June 2019.

The gross market value of OTC derivatives, which provides a measure of amounts of risk and includes positive and negative values, also rose, from $9.7 trillion to $12.1 trillion. This was driven entirely by interest rate contracts, in particular euro-denominated contracts (which rose from $3.1 trillion to $4.4 trillion). US dollar-denominated interest rate contracts also rose, from $1.2 trillion to $1.7 trillion. The gross market value of both FX and credit derivatives remained relatively stable, standing at $2.2 trillion and $0.2 trillion, respectively, at end-June 2019.

The statistics published by the BIS on a semi-annual basis usually capture the outstanding derivatives positions of 70 large banks and other dealers in 12 jurisdictions. This information is complemented every three years by the more comprehensive BIS Triennial Survey, which covers more than 30 additional jurisdictions and over 300 additional dealers. With the latest Triennial Survey taking place in April 2019, the data captured by it are used to scale up the semi-annual data to more accurately reflect the global size and composition of OTC derivatives markets.

Large dealers in advanced economies (AEs), who report data to the semi-annual survey, accounted for the overwhelming majority (92% of notional amounts, 87% of gross market value) of outstanding positions at end-June 2019. Nevertheless, the BIS says the contribution of the smaller dealers who report data only once every three years was “significant in some segments”. Dealers in EMEs accounted for 9% of notional amounts of outstanding foreign exchange and commodity derivatives, up from 7% at end-June 2016. This reflects the importance of exchange rate risk and commodity price movements for EMEs, BIS says.

Colin Lambert

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