FX Derivatives Share of Total OTC at 22%: BIS Report

The amount of outstanding foreign exchange derivatives on the market declined by $300 billion

The Bank of International Settlements published today its OTC Derivatives Statistics Report for the second half of 2018. The publication sheds light on the size of multiple markets, including foreign exchange.

Over the second half of 2018, the market values for foreign exchange contracts declined by about $300 billion to $2.3 trillion. The move represents a decline of over 11 percent when compared to the first half of last year. Nevertheless, the numbers are consistent with the market size over the past ten years.

At the same time, due to a significant decline in the size of derivatives on interest rates contracts, the market share of the OTC FX market increased from 10.5 percent at the end of June 2014 to 23 percent as of the end of last year. Only three percent of the foreign exchange contracts were with CCPs.

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Overall OTC Derivatives Market

The notional amounts of OTC derivatives declined from the end of June to $544 trillion, which is lower by 8.5 percent over six months. US dollar interest rate contracts led to the decline. With ongoing structural changes to the market, the share of IR contracts dropped from 80 percent in June 2014 to 66 percent at the end of 2018.

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Last year was the third one in a row when the first half of the year starts with a rebound and the second half ends lower. The gross market value of the derivatives contracts continued trending lower, reaching $9.7 trillion at the end of December from a peak of $35 trillion at the end of 2008.

Gross credit exposures dropped to $2.3 trillion at end-December of last year. This is the lowest point since before the Great Financial Crisis of 2008.

Interest Rate Contracts

The notional amounts of US dollar and euro-denominated interest rate contracts declined materially in the second half of 2018. USD contracts continued to be the largest segment but fell from $193 trillion at end-June 2018 to $169 trillion at end-December.

EUR contracts, dropped slightly in the second half of 2018, from $129 trillion to $114 trillion. GBP and JPY deals remained at lower levels with $39 trillion for sterling and $36 trillion for the Japanese yen.

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