June 2, 2014

The Size of the OTC Market | End Dec 2013

The latest BIS report on volumes in the OTC market shows two opposite trends for Rates and Credit derivatives

Rather than rewrite their paper, I've picked out summary quotes and the juicy charts, the full PDF is attached, the original source is from this BIS page on the end-2013 stats.

The BIS, in cooperation with central banks and monetary authorities worldwide, compiles and disseminates several data sets on activity in international banking and financial markets. This latest report summarises the data for the international banking and OTC derivatives markets, available up to the end of 2013.

Total OTC Market State

OTC derivatives markets continued to expand in the second half of 2013. Increases in notional amounts were driven by interest rate derivatives, especially contracts with a medium- to long-term maturity. In credit default swap (CDS) markets, central clearing and netting made further inroads.

Notwithstanding the increase in notional amounts, the market value of outstanding derivatives contracts declined, based on market prices at end- December 2013. The gross market value of all contracts – that is, the cost of replacing all outstanding contracts at market prices prevailing on the reporting date – stood at $19 trillion at end-December 2013. This is down from $20 trillion at end- June 2013 and $25 trillion at end-2012 (Right hand chart above).

Interest Rate Derivatives

The gross market value represents the maximum loss that market participants would incur if all counterparties failed to meet their contractual payments and the contracts could be replaced at current market prices. Market participants can reduce their exposure to counterparty credit risk through netting agreements and collateral. Gross credit exposures adjust gross market values for legally enforceable bilateral netting agreements but do not take account of collateral. Gross credit exposures equalled $3.0 trillion at end-December 2013, down from $3.8 trillion at end-June 2013 (Graph 3, right-hand panel). This represented 16.3% of gross market values at end-December 2013, slightly higher than the 2009–12 average of 15.1%.

Credit Derivatives


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