NO 228 – FEBRUARY 2012
Clearing at the crossroads

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WFE Focus January 2012
Trading and Clearing Derivatives volumes
Romain Devai
Research and Projects Manager, WFE
Gregoire Naacke
Economist, WFE

11% increase in exchange traded derivatives trading volume in 2011

Trading in derivatives on regulated exchanges worldwide reached a record volume of traded contracts in 2011, according to statistics compiled by the WFE.

More than 24 billion derivative contracts were traded on exchanges worldwide in 2011 (11.9 billion futures and 12.9 billion options) against 22 billion in 2010. The growth rate (+11%) is lower than the one observed in 2010 (+25%) but remains significantly high. Between 2006 and 2011, the number of traded contracts has more than doubled, according to WFE, which annually conducts a survey on derivative markets. The full report will be available after the annual IOMA conference in London from 15 to 17 April 2012.

According to Bank for International Settlements (BIS) statistics, total notional amounts outstanding of over-the-counter (OTC) derivatives rose by 18% in the first half of 2011, after an increase of only 3% in the second half of 2010. Notional amounts outstanding of OTC equity-linked contracts increased by 21%* (against 12% for exchange-traded contracts over the same period of time) while outstanding interest rate contracts went up by 19% (against 22% for exchange-traded contracts over the same period of time).

Other highlights of the preliminary WFE derivatives report:

  • Equity derivatives The growth (+14% as in 2010) was driven by index and ETF derivatives that increased much faster (+19%) than single stock derivatives (+5%). Given the high volatility of markets in 2011, this overall increase in volumes seems logical as hedging needs were probably driven upwards by volatility. The relative preference for indices or ETFs underlyings compared to single stocks could also be interpreted similarly.
  • Interest rate derivatives. Interest rates derivatives confirmed the rebound observed in 2010 and continued to grow in 2011 (+9%) despite factors generically seen as unfavorable (low interest rates environments, no economic growth and credit expansion) in certain regions.
  • Currency derivatives, experienced the highest growth rate in 2011 (+16%) and thus became larger than the commodity derivatives market in terms of number of traded contracts. This important growth was mainly driven by currency options traded on National Stock Exchange of India since October 29, 2010 and that were already representing 253 millions of traded contracts in 2011. When the currency options traded in India are excluded from statistics, the growth rate of traded volumes in 2011 remains significant (+ 6%).
  • Commodity derivatives decreased by 6% due to important decrease of volumes on Chinese Exchanges (-34%). Excluding Chinese Exchanges, the global growth rate, for commodity derivatives, in 2011, was +24%.

Clearing statistics
For the second consecutive year, WFE also gathered statistics from clearinghouses. In those statistics the distinction is made between on-exchanges trades and OTC trades cleared by a clearinghouse.

>24 mn
derivative contracts traded on exchanges worldwide in 2011

Regarding equity derivatives, clearing services for over-the-counter trading are only significant in EAME geographical region. In this region, OTC trades were accounting for 32% of the traded volumes in 2011 and decreased by 1.6% whereas total equity derivatives traded increased 11%.

Regarding Interest Rates Derivatives notional outstanding amounts and number of open positions, they increased in 2011 for interest rate swaps whereas they decreased for options and futures traded on-exchange.

According to ISDA1, the share of cleared interest rate swaps in total outstanding interest rate swaps traded over-the-counter more than doubled between 2007 and June 2011 (50.8% at the end of June 2011 against 21.3% at the end of December 2007).

In thE EAME region, OTC equity derivati ve trades accounted for 32% of the tota l equity derivatives traded in 2011.

Volumes of OTC Commodity Derivatives cleared are significant on two Exchanges, namely on CME Group and ICE. On CME Group, the number of OTC commodity derivatives cleared contracts in 2011 increased more slowly (+2%) than on-exchange traded contracts (+12%).

In 2011, the total notional outstanding amounts of CDS cleared increased by 32% to reach USD 1 574 billion. CME Group and LCH CLearnet S.A. started offering clearing services for CDS in 2010 but, at the end of 2011, ICE Trust in the US and ICE Clear Europe were still accounting for 98.3% of the total notional outstanding amounts.

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