In the first half of 2010, growth in amounts outstanding was subdued or negative in all risk categories. Positions of all types of OTC derivatives fell by 4% to $583 trillion (10 times the world’s GDP).  
 
Today the BIS releases the latest statistics on positions in the global over-the-counter (OTC) derivatives market. These comprise the results of the second part of the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity as well as the regular semiannual OTC derivatives statistics.
 
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    * Data from the semiannual survey shows that, in the first half of 2010, growth in amounts outstanding was subdued or negative in all risk categories. Positions of all types of OTC derivatives fell by 4% to $583 trillion, following the 2% increase in the second half of 2009. The decline occurred against the backdrop of deteriorating market sentiment related to the European sovereign debt crisis. However, much of the contraction reflected a valuation effect due to the depreciation of European currencies against the US dollar, the currency in which the data are reported. In contrast to the decline in the positions, gross market values for existing OTC contracts rose by 15% to $25 trillion at end-June on the back of sharp asset price movements. Gross credit exposures, after netting agreements, which had dropped slightly in the half-year up to end-2009 (-6%) increased by 2% to $3.6 trillion.
  
 
* Notional amounts outstanding of credit default swaps (CDS) declined for the fifth consecutive semiannual period, largely due to terminations of existing contracts. Gross market values for single-name contracts dropped by 16%, while those for multi-name contracts rose by 10%. The latest semiannual survey introduces additional information on the importance of central counterparties (CCPs) in the CDS market. At end-June 2010, about 11% of CDS positions were vis-à-vis a CCP 1 .
 
The CDS counterparty breakdown for contracts with other financial institutions has also been expanded. In particular, special purpose vehicles (SPVs) and hedge funds are singled out for the first time. CDS contracts with hedge funds and SPVs account for about 5% and 4% respectively of total notional amounts outstanding with other financial institutions.
 
A detailed analysis of elements of the 2010 Triennial Survey and of the end June 2010 semiannual OTC derivatives statistics will be made available in the forthcoming December BIS Quarterly Review. In particular, the publication will include special features on structural changes in the CDS market, on derivatives in the emerging economies, on the drivers of growth in FX markets, and a user's guide to the Triennial survey.

 

The rules being proposed by the Commission will need approval both from EU member states and the European parliament. The aim is to have them in force by mid to late 2012.
 
The proposals follow agreement by G20 leaders last year to standardise derivatives trading and move them on to exchanges or electronic trading platforms where appropriate. The proposals will closely align the EU with the new regime that is coming into force in the US.
 
The rules will require standard OTC derivatives to be processed through clearing houses – a move aimed at reducing systemic risk arising from a default of one party in an OTC deal. They will also require OTC contracts – the bilateral agreements between buyers and sellers – to be reported to “trade repositories” or data banks, and for this information to be available to regulators.
 
But Brussels also plans to make it more expensive for firms to deal in non-cleared contracts, by requiring them to hold more capital against these – although that measure will be introduced in separate legislation shortly.
 
The short-selling proposals suggest that investors must disclose significant net short positions to regulators once these amount to 0.2 per cent of the issued share capital of a company, and to the market at a higher 0.5 per cent threshold.
 
So-called “naked” short selling – where traders sell a security without owning it or borrowing it in expectation of buying it back at a cheaper level – will only be allowed in limited circumstances.
 
There will be a specific regime for telling regulators about significant net short positions in credit default swap positions related to EU sovereign debt issuers. The proposals also include powers to allow national regulators to restrict short selling in sovereign CDSs during periods of volatile trading
 

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