This week the Bank for International Settlements (BIS) published the second part of its triennial survey and the regular semi-annual survey of positions in the OTC derivatives markets. They’re not wildly exciting, and can probably be summarised with the words: growth in forward FX volumes is healthy, if undramatic, and currency options volumes are holding up.
Read on if you need more detail…
The surveys both cover “the notional amounts outstanding and gross market values of foreign exchange, interest rate, equity, commodity and credit derivatives traded in OTC markets, and both refer to the worldwide consolidated positions of reporting dealers.”
However, the surveys differ in their coverage: the triennial has more than 400 participants in 47 jurisdictions, whereas the semi-annual survey canvassed 59 large dealers in the G10 countries and Switzerland. Both reports show notional amounts outstanding and gross market value (“the cost of replacing all open contracts at the prevailing market prices”).
In FX, the figures include FX swaps and outrights and currency swaps as well as currency options, but we’ll give some focus on the currency options numbers where we can.
In the Triennial survey, OTC FX derivative notional amounts increased 9% to $63 trillion. This compares poorly to the 83% increase in market growth between 2004 and 2007. On the other hand, the 2010 survey does show a near doubling of gross market values over 2007. But this increase is hardly unexpected: mid-2007 marked the nadir of implied volatility, with one-year EUR/USD under 6%, compared with around 14% in June this year. Currency option notionals show a small decrease (as did April volumes in the first part of the survey) of 11.4% but, in line with the increase in volatility, gross market value increased by 63%.
Without wanting to sound flippant, the semi-annual survey is no more interesting and there is greater need to adjust for relative currency movement. It shows that in the first half of 2010 notional amounts increased by 8% to $53 trillion. Notional amounts in dollar-denominated contracts increased by 11%, while those in euro-denominated contracts fell by 2%, but then EUR/USD was off 8.5% – at 1.22 year-end and at 1.43 mid-year. Of more interest were the revelations that CHF notionals were up 23% as EUR/CHF came under pressure. The market values of outstanding contracts were generally up by around 20% – with currency-specific variations (values were up 100% and 28% for CHF and CAD respectively, but “essentially unchanged” for GBP.) Currency option figures show a small increase in notional amounts over the preceding three semi-annual reports, while gross market values are slightly up on the previous two reports but 34% down on H2 2008. At the end of 2008, volatility was bid at its height of around 20% for one-year EUR/USD.
So, as I said at the beginning, forward volumes are still on a steady upward path, option volumes are also on the up-side of steady and don’t seem to be suffering over-much from the increased stress on simpler structures nor the weight of regulatory demands.
