Worldwide trading of listed derivatives soared by 25% in 2010, reaching its highest level since 2003, as market participants prepare for new rules governing over-the-counter (OTC) swaps.
According to figures from the World Federation of Exchanges (WFE), over 22.4 billion derivatives contracts were traded globally in 2010, a 4.6 billion rise over the 17.8 billion traded in the previous year. Growth was most pronounced in Asia-Pacific, where 8.9 billion contracts were traded in 2010, a 29.3% increase over 2009.
Currency futures were the fastest growing contract type, experiencing a 148% increase in the number of contracts traded to 2.2 billion. Trading in interest rate derivatives grew 29% to 3.3 billion contracts, its highest since before the crisis in 2008 and a marked improvement to the 23% decline recorded in 2009. Stock index futures were the most heavily traded, with 5 billion contracts transacted in 2010.
“The increase in volume transacted on exchanges confirms the trend noted in a study commissioned by the WFE and conducted by TABB Group,” said Ronald Arculli, chairman of WFE and chairman of Hong Kong Exchanges and Clearing. “The strong volume in exchange-traded derivatives in 2010 indicates that reforms in regulation of over-the-counter derivatives markets are causing participants to shift some of their risk transfer activities to exchange-traded derivatives.”
European and US regulators are in the process of finalising reforms for the OTC derivatives market, which includes migrating swaps onto exchange, mandating central clearing and creating data repositories to monitor exposures on an ongoing basis.
In the US, the rule making process involves regulatory bodies the Commodity Futures Trading Commission and the Securities and Exchange Commission, while the European Commission has included new rules for OTC derivative trading platforms in MiFID II and clearing and data collection in its European markets infrastructure regulation.
Arculli added that the notional amount of outstanding OTC derivatives contracts decreased by 13% between June 2009 and June 2010, according to Bank for International Settlements statistics.