NO 242 – APRIL 2013

WFE Focus April 2013
Economist, WFE

For the ninth consecutive year, the WFE is conducting its annual survey on derivatives traded worldwide. A full set of statistics about trading and clearing activities of derivative exchanges and clearinghouses worldwide is gathered by WFE. The first results presented here focus on the biggest exchanges by volumes for each asset class. The full report will be available following the WFE/IOMA Annual Derivatives Conference held this year in Busan, from 5 to 8 May 2013.

As noted in the press release published in March 2013, for the first time since 2004, the number of Exchange Traded Derivatives (ETD) worldwide decreased in 2012 by 15% to 21 billion. Nevertheless, it is important to have a closer look at other indicators than the number of traded contracts to better understand this historical decrease.

1) Equity derivatives

Following the significant decrease of volatility and the decline in the value of cash equities in 2012, the number of equity derivatives traded decreased by 19%.

The most active exchanges in the trading of single stock options are located in Americas. It is interesting to note that, on the three main US markets, namely Nasdaq OMX (US), NYSE Liffe (US) and CBOE, while the number of traded contracts decreased in 2012, at the same time the number of trades and premium paid increased significantly.

Single stock futures are mainly traded in Europe. Despite the 9% decrease of volumes, the number of open position contracts at the end of 2012 was 15% higher than one year before. Nevertheless, the open positions numbers at the end of the year have to be interpreted with caution. When the last maturity date is a few days before the end of the year, a large number of positions can be closed at this date and the total number of open positions can thus decrease sharply at this date. For example, on NYSE.Liffe in Europe the number of open positions for single stock futures at the end of November 2012 was 53% higher than at the end of December 2012 due to the important number of positions closed at the last maturity date i.e. 20th December.

ETF options experienced a sharp decrease of both number of traded contracts and premium paid. The ETF options market remains mainly a US market.

Excluding Korea Exchange and BSE Ltd, the number of index options traded decreased by 11% and the number of paid premium decreased even sharply (-30%). Korea Exchange and BSE Ltd have indeed to be excluded in order to do a same scope year on year comparison due to the size changing of the contracts in Korea Exchange and the introduction of new contracts on BSE Ltd.

Stock index futures account for the largest share of equity derivatives notional value. The larger size of those contracts indicates that they are more frequently used by institutional investors for hedging purpose.

2) Interest Rate Derivatives

The Interest Rate derivatives market is highly concentrated and the three main exchanges experienced significant decrease of volumes in a context of low interest rates environments, no economic growth and no credit expansion.

As for Equity derivatives, BM&FBOVESPA stands out from other exchanges with a positive growth rate of volumes, Open Interest and number of trades.

On Long Term Interest Rate segment the number of open positions and the notional outstanding amount increased significantly despite the drop in volumes.

3) Currency derivatives

The highest decrease of volumes in 2012 (-23%) was seen by currency derivatives, but was partly due to the comparison with very high volumes registered in recent years. Contracts traded in India still account for a large part of volume (60%) and primarily explains the 2012 decrease as well as the huge increases observed in recent years. In the two main markets in terms of notional value, namely CME Group and BM&FBOVESPA, the drop in volumes was much less pronounced.

The number of open positions increased significantly (+18%), despite the volume decrease.

4) Commodity Derivatives

Commodity derivatives was the only segment that experienced an increase of volumes in 2012 (+18%). This increase was partly, explained by Mainland Chinese Exchanges that experienced a 34% increase and that accounted for 41% of the global volumes in 2012 and by ICE in the US that transferred all cleared OTC energy swaps to futures in mid-October 2012.

5) Other derivatives

The “Other derivatives” category is mainly composed of new innovative products that appeared to be more and more numerous and successful in the last few years. In 2012, most of the biggest other derivative contracts experienced double-digit volume growth.