Thursday, October 23, 2003

B.I.S. - Derivatives On The March - Speculation?

This is the market that reveals the true size of the global transactions bubble. It is the most complex of markets. It bears watching.

O.C.C. Derivatives 2003
Exchange-traded markets return to life - B.I.S.

Following a long period of stagnation, exchange-traded markets have experienced a remarkable recovery since 2001. Whereas turnover in the exchange-traded financial contracts monitored by the BIS averaged about $360 trillion in the second half of the 1990s, average activity in the first two years of the new millennium rose by nearly 80% to $644 trillion. Much of that higher turnover resulted from an unprecedented increase in the trading of short-term interest rate contracts to an average of $512 trillion in 2001 and 2002. Activity in government bond contracts also increased substantially, even if by less in absolute amounts.

This recovery can be attributed to a number of factors, some of which appear to have been cyclical and others of a longer-term nature. The main cyclical factor seems to have been monetary easing since early 2001. Long-term factors include a possible shift away from the OTC market due to concerns about counterparty credit risk and the introduction of new hedge accounting rules. While more extensive research would be required in order to quantify the relative contribution of the various factors, this box offers a preliminary discussion of the most likely recent sources of market growth.

Stock index contracts return to expansion

Trading in stock index futures and options returned to expansion in the second quarter of 2003 after a slight contraction in the previous quarter. Aggregate turnover rose by 11% to $18.6 trillion. As was the case with fixed income contracts, the growth in activity was higher in the Asia-Pacific region, up 20% to $6.3 trillion, and in North America, up 9% to $8.3 trillion, than in Europe, where business expanded by only 2% to $3.9 trillion. Stock index business rises in Korea and the United States. ...Report Continued

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