| 2007
YEAR-END MARKET SURVEY
Notional amounts of interest
rate derivatives outstanding grew almost 10 percent to $382.3 trillion
in the second half of 2007. For the year as a whole, interest rate derivatives
notionals rose 34 percent.
The notional amount outstanding
of credit default swaps (CDS) grew 37 percent to $62.2 in the second half
of 2007. CDS notional growth was 81 percent for all of 2007.
Notional amounts of equity
derivatives remained flat at approximately $10 trillion during the second
half of 2007. The annual growth rate for all of 2007 was 39 percent.
In this survey, 91 firms
provided data on interest rate swaps, 81 provided responses on credit
derivatives, and 83 provided responses on equity derivatives. All major
dealers responded.
2007
MID-YEAR MARKET SURVEY
Notional amount outstanding
of interest rate derivatives grew by 21 percent to $347.09 trillion from
$285.73 trillion. This compares with 14 percent growth during the second
half of 2006. The annual growth rate for interest rate derivatives to
mid-2007 is 38 percent from $250.83 trillion in mid-2006. In this survey,
88 firms provided data. All major dealers responded.
Notional amount outstanding
of credit derivatives grew by 32% in the first six months of the year
to $45.46 trillion from $34.42 trillion. The annual growth rate for credit
derivatives is 75% from $26.0 trillion at mid-year 2006.
Notional amount outstanding of equity derivatives, which consist of equity
swaps, options, and forwards, grew by 39 percent from $7.18 trillion to
$10.01 trillion. This compares with 13 percent growth during the second
half of 2006. The annual growth rate for equity derivatives to mid-2007
is 57 percent from $6.38 trillion at mid-year 2006.
2006
YEAR-END MARKET SURVEY
Notional amounts of interest rate
derivatives outstanding grew almost 14 percent to $285.7 trillion in the
second half of 2006. For the full year, interest rate derivatives notional
amounts rose 34 percent over 2005, which is above the annual growth rate
of recent years.
The notional amount outstanding of credit
default swaps (CDS) grew 32 percent in the second half of 2006, rising
from $26.0 trillion at June 30, 2006 to $34.4 trillion at December 31,
2006. This compares with 52 percent growth during the first half of 2006.
CDS notional growth for the whole of 2006 was 101 percent, compared with
103 percent during 2005. The survey monitors credit default swaps on single-names,
baskets and portfolios of credits and index trades.
Notional equity derivatives amounts outstanding
grew 12 percent from $6.4 trillion to $7.2 trillion in the 2006 second
half. Annual growth was 29 percent, compared with 34 percent during 2005.
The above notional amounts, which total $327.3 trillion across asset classes,
are an approximate measure of derivatives activity, and reflect both new
transactions and those from previous periods. The amounts do not, however,
represent the risks associated with the activity; in order to determine
risk, it is necessary to estimate net replacement cost, which ISDA does
not collect.
The Bank for International Settlements (BIS) collects both notional amounts
and market values in its derivatives statistics and it is possible to
use the BIS statistics to approximate the amount at risk in the ISDA survey
results. As of December 2006, gross mark-to-market value reported to BIS
was approximately 2.3 percent of notional amount outstanding. In addition,
net credit exposure (after netting but before collateral) was reported
as 0.49 percent of notional amount outstanding.
Applying these percentages to the total ISDA Market Survey notional amount
outstanding of $327.4 trillion as of December 31, 2006, gross credit exposure
before netting is estimated to be $7.6 trillion and credit exposure after
netting is estimated to be $1.6 trillion.
2006
MID-YEAR MARKET SURVEY
Notional amount outstanding
of interest rate swaps and options and cross-currency swaps grew by 18
percent to $250.8 trillion from $213.2 trillion. The annual growth rate
for interest rate derivatives to mid-2006 is 25 percent from $201.4 trillion
in mid-2005. 101 primary member firms provided interest rate derivatives
data.
Notional amount of credit
default swaps grew by 52% in the first six months of the year to $26.0
trillion from $17.1 trillion. The annual growth rate for credit derivatives
is 109% from $12.4 trillion at mid-year 2005. 88 firms provided credit
default swap data.
Finally, notional amount
outstanding of equity derivatives, which consist of equity swaps, options,
and forwards, grew by 15 percent from $5.5 trillion to $6.4 trillion.
This represents year-on-year growth of 32 percent from $4.8 trillion at
mid-year 2005. 87 firms provided equity derivatives data.
2005
YEAR-END MARKET SURVEY
The notional principal amount
outstanding of interest rate derivatives, which include interest rate
swaps and options and cross-currency interest rate swaps, grew almost
6 percent to $213.2 trillion. This is a 16 percent increase from one year
ago, and is in line with gradually decreasing growth rates for interest
rate derivatives. A total of 98 ISDA Primary Member firms provided interest
rate derivative data.
Credit default swaps grew
38 percent from $12.4 trillion to $17.1 trillion, compared with 48 percent
growth during the first half of 2005. Growth during all of 2005 was 105
percent, compared with 123 percent during 2004. In all, 86 firms provided
CDS data.
Finally, notional amount
outstanding of equity derivatives, consisting of equity swaps, options,
and forwards, grew 15 percent from $4.8 trillion to $5.6 trillion. Annual
growth was almost 34 percent, compared with 28 percent during 2004; 83
firms provided equity derivatives data.
2005
MID-YEAR MARKET SURVEY
The notional amount outstanding
volume of interest rate swaps and options and cross-currency swaps grew
by almost 10 percent to $201.4 trillion from $183.6 trillion during the
first six months of 2005. The annual growth rate for interest rate derivatives
to mid-2005 is 22 percent from $164.49 trillion in mid-2004. A total of
101 primary member firms provided interest rate derivative data for this
Survey.
Notional amount of credit default swaps grew by almost 48% during the
first six months of the year to $12.43 trillion from $8.42 trillion. This
represents a year-on-year growth rate of 128% from $5.44 trillion at mid-year
2004; 86 firms provided credit default swap data.
Finally, notional amount
outstanding of equity swaps, forwards, and OTC options grew by over 16
percent from $4.15 trillion to $4.83 trillion, an increase over the 10
percent growth in the second half of 2004. This represents year-on-year
growth of 28 percent from $3.79 trillion at mid-year 2004; 81 firms provided
equity derivatives data.
2004 YEAR-END
MARKET SURVEY
The notional amount outstanding of interest
rate swaps and options and cross-currency swaps grew by 12 per cent from
$164.49 trillion to $183.6 trillion during the second half of 2004. The
annual growth rate of interest rate derivatives was 29 per cent for 2004.
The notional amount outstanding of credit
default swaps grew by almost 55 per cent in the second half of 2004 from
$5.44 trillion to $8.42 trillion. This represents an annual growth rate
of 123%.
Finally, notional amount outstanding of equity
swaps, options, and forwards grew by almost 10 per cent from $3.79 trillion
to $4.15 trillion. The 2004 year-on-year growth rate was 21 per cent.
In the 2004 Year-End Survey, 109 firms provided
data on interest rate derivatives; 91 provided responses on credit derivatives;
and 87 provided responses on equity derivatives. All numbers are adjusted
for double-counting.
2004
MID-YEAR MARKET SURVEY
Notional outstandings in interest rate derivatives
grew almost 16 percent to $164.49 trillion, mirroring growth in the second
half of 2003. For the purposes of the Survey, interest rate derivatives
include interest rate swaps and options and cross-currency interest rate
swaps. Credit derivatives notionals grew 44 percent in the first half
of 2004 to $5.44 trillion, compared with 33 percent growth reported during
the second half of 2003. Finally, outstandings for equity derivatives—consisting
of equity swaps, options and forwards—grew 9.7 percent $3.79 trillion.
A total of 120 firms responded to the 2004 Mid-Year Survey.
2003
YEAR-END MARKET SURVEY
The notional principal outstanding
volume of interest rate derivatives, which include interest rate swaps
and options and cross-currency interest rate swaps, grew by 15 per cent
to $142.31 trillion during the second half of 2003. This is a slower rate
of growth than in the first half of 2003, during which interest rate derivatives
grew by 24 percent. For all 2003, the year-over-year growth rate from
December 2002 to December 2003 was 43 percent. A record 120 firms responded
to the Survey.
Credit derivatives, in contrast,
grew at a stronger rate in the second half (41 percent) than in the preceding
six months (25 percent); notional amounts now stand at $3.78 trillion
(originally reported as $3.58 trillion). This represents a year-over-year
growth of 76 percent. Credit derivatives, for the purposes of the Survey,
consist of credit default swaps on individual names, baskets, and portfolios.
110 firms provided data on credit default swaps.
Finally, notional outstandings
for equity derivatives, consisting of equity swaps, options, and forwards,
grew 24 per cent, compared with 14 percent in the first half. Notionals
now stand at $3.44 trillion. This represents year-over-year growth of
41 percent. 106 firms provided data on equity derivatives.
2003
MID-YEAR MARKET SURVEY
The notional principal outstanding volume
of vanilla interest rate derivatives, which consist of interest rate swaps
and options and cross-currency swaps, grew by 24 percent to $123.90 trillion.
A total of 110 firms provided data on vanilla interest rate derivatives.
Adjusting for sample growth by comparing only those firms that responded
to both the Year-end 2002 and Mid-year 2003 Surveys, outstandings grew
by about 21 percent.
Credit derivatives continued their strong
growth at 25 per cent in the first six months of 2003 to $2.69 trillion,
a similar rate of growth to the previous six months. Credit derivatives
in the Survey, include credit default swaps, baskets and portfolio transactions.
Adjusting for sample growth, outstandings grew by 28 percent.
Finally, notional outstandings for equity
derivatives, consisting of equity swaps, options, and forwards, grew 14
per cent to $2.78 trillion. Adjusting for sample growth, equity derivatives
were essentially flat at 1.4 percent growth over the Year-end 2002 results.
2002
YEAR-END MARKET SURVEY
Credit derivatives growth
was the strongest of the three main product categories at more than 37%
in the six months prior to year-end 2002. Total notional outstanding volume
in this area grew to $2.15 trillion. Notional outstanding volume in interest
rate and currency derivatives, or ‘plain vanilla’ swaps and
options totaled $99.83 trillion, an increase of just over 20%, while the
figure for equity derivatives outstanding amounts grew to $2.45 trillion,
a 5.8% increase. A record number of ISDA member firms responded to the
Survey, with 108 out of 201 primary members globally providing data.
Interest rate and currency
derivatives, which consist of interest rate swaps and options and currency
swaps, increased over 20.66% in the last six months of 2002, which mirrors
the increase among the top ten reporting firms at 20.68% growth. Among
firms responding to both the Mid-year and Year-end Surveys, outstandings
grew by 19.2%.
Credit derivatives, which
consist of credit default swaps, baskets and portfolio transactions, grew
37.42% since the end of June 2002; among firms responding to both surveys,
outstanding volumes grew 34.68%. Equity derivatives, which consist of
equity forwards, swaps, and options, grew by 5.78%, as against 2.48% for
those firms who responded to both surveys.
2002 MID-YEAR MARKET
SURVEY
As of the end of June 2002, interest rate
and currency derivative outstandings were $82.7 trillion, credit derivatives
$1.6 trillion, and equity derivatives $2.3 trillion. Equity derivatives,
which consist of equity forwards, swaps, and options, were the newest
addition to the Market Survey.
Interest rate and currency derivatives, which consist of interest rate
swaps and options and currency swaps, increased over 19% since the end
of 2001. Among firms responding to both the Year-End and Mid-Year Surveys
for interest rate and currency derivatives, outstandings grew 16%; and
among the top ten reporting dealers, outstandings grew nearly 18%.
Credit derivatives, which consist of credit default swaps, grew 44% since
the end of 2001; among firms responding to both the 2001 Year-End and
the 2002 Mid-Year Surveys, outstandings grew 35%. In order to reflect
an increase in estimates of the relatives percentage of end-users and
dealer activity, ISDA adopted a new adjustment for double counting of
credit default swap dealer transactions in the Mid-Year 2002 Survey; the
new adjustment factor is 18.5% higher than the old factor. The reported
outstandings of $1.6 trillion consequently reflect both the growth in
outstandings of 44% and the increase in the adjustment factor of 18.5%,
giving a total increase in the reported numbers of 70%. This is a one-time
adjustment, which will not affect future growth estimates.
2001 YEAR-END MARKET
SURVEY
Notional principal outstanding amounts for
interest rate swaps and options and currency swaps were $69.2 trillion
at the end of 2001 compared with $57.3 trillion at mid-year and $63.0
trillion at the end of 2000. These numbers represented a 20% increase
since the Mid-Year Survey and a 10% increase on the year. Among the top
dealers, volume increased 20% from $34.7 trillion at the end of 2000 to
$43.0 trillion at the end of 2001; virtually all of the increase occurred
during the second half. Eighty ISDA member institutions participated in
the Survey.
Credit default swaps, which ISDA began to
survey at mid-year 2001, grew 45% to $918.9 billion from the $631.5 billion
reported in June. "The credit derivative numbers show impressive
growth during a difficult period," said Keith Bailey, Chairman of
the Board of ISDA. "This is testimony to the value that these products
bring to market participants in managing risk in times of volatility and
uncertainty."
2001 MID-YEAR MARKET
SURVEY
Total notional principle of interest rate
swaps, interest rate options and currency swaps fell 9.05% for all surveyed
firms in the first six months of 2001. Notional principal outstanding
for the transactions was $57.305 trillion at the end of June 2001, compared
with $63.009 trillion at the end of 2000. Among top ten dealers, there
was a less significant decrease in volume from $35.648 trillion to $35.532
trillion.
Polling member firms for the first time on
credit derivatives transactions, ISDA surveyed total notional outstanding
volumes for single name credit default swaps, default swaps on baskets
of up to ten credits, and portfolio transactions of ten credits and more.
83 ISDA member firms supplied data on these products. The results for
the first half of 2001 show that global notional outstanding volume of
credit derivatives transactions was $631.497 billion.
While still modest in relation to interest
rate products, credit swaps are expected to remain on a strong upward
trend compared to more mature derivative product areas. “Shifting product
use is a reflection of a more uncertain global market environment,” said
Thomas K. Montag, Vice-Chairman of ISDA and Chair of the Association’s
Market Survey Committee. “The market for credit protection has an obvious
appeal during times of economic downturn,” said Mr Montag, a Managing
Director of Global Interest Rate Products and Asia FICC, and Co-President
of Goldman Sachs (Japan), Ltd.
2000 YEAR-END MARKET
SURVEY
Global OTC derivatives volumes increased
by 8.14% in the year ending December 31, 2000, according to the latest
survey conducted by the International Swaps and Derivatives Association
(ISDA).
Volumes globally totaled $63.009 trillion
at year-end, from $60.366 trillion reported for the first half of the
year, representing a 4.38% growth rate in the second half of 2000. Among
the top ten firms, the market grew by 5.01% from $32.440 trillion to $34.064
trillion between mid-year and year-end 2000.
Measured in notional principal outstanding
amounts, the survey tracks market growth in interest rate swaps, interest
rate options and currency swaps, as reported by ISDA’s member organizations.
“Continuing growth in interest rate and currency
products demonstrates the need for effective tools to manage potentially
adverse economic movements,” said Thomas K. Montag, vice-chairman of ISDA
and chair of the Association’s Market Survey Committee. Mr. Montag is
a managing director and global head of interest rate products at Goldman
Sachs, based in Tokyo. “As many of the world’s economies slow down and
we experience major market volatility, the benefits of OTC derivatives
are even more evident.”
The survey, which is compiled twice yearly
by Arthur Andersen LLP, is performed on a confidential basis and produces
a headline statistic. This is complemented by the more comprehensive survey
produced quarterly by the Bank for International Settlements. Figures
in the ISDA survey represent the outstanding notional volumes of 105 member
institutions, of which, 72 were participants in the previous semi-annual
survey.
2000 MID-YEAR
MARKET SURVEY
Global OTC derivatives use grew by 3% in
the first half of 2000, reveals the semi-annual market survey sponsored
by the International Swaps & Derivatives Association (ISDA). But among
the top ten reporting institutions, volume was up 10% to $33.48 trillion.
Measured in notional principal outstanding
amounts, the survey tracks market growth in interest rate swaps, interest
rate options and currency swaps, as reported by member organizations.
For the six months ending June 30, 2000, these totaled $60.366 trillion,
compared with $58.265 trillion at the end of 1999. For the period ending
June 30, 1999, the total stood at $52.711 trillion.
“These figures reflect the continuing appeal
of OTC derivatives as a risk management mechanism, and demonstrate that
consolidation among institutions has not slowed the growth of product
use,” said Thomas K. Montag, vice-chairman of ISDA and chair of the Association’s
Market Survey Committee. Mr Montag is a managing director and global head
of derivatives trading at Goldman Sachs, based in Tokyo. “While the rate
of growth at the top ten firms outstrips the headline figure, the results
also show an increasing number of smaller member firms participating in
these markets.”
The survey, which is compiled twice yearly
by Arthur Andersen, is performed on a confidential basis and produces
a single headline statistic. This is complemented by the more comprehensive
survey produced quarterly by the Bank for International Settlements. Outstandings
in the ISDA survey represent notional volumes of 100 member institutions,
of which 78 were also participants in the previous semi-annual survey.
Top of Page
1999 YEAR-END ISDA
MARKET SURVEY
The International Swaps and Derivatives
Association (ISDA) reported that the combined total of outstanding interest
rate swaps, currency swaps and interest rate options stood at $58.265
trillion in notional principal at Dec. 31, 1999 compared with $50.997
trillion one year earlier.
The year-to-year increase was 14.3% compared
with 1998's record 76%. The preponderance of 1999's gain, 10.5%, took
place in the second half compared with 3.4% in the first six months. Outstanding
contracts in the three swap categories totaled $52.711trillion at mid-year
and $50.997 trillion at the close of 1998.
Compiled by Arthur Andersen, the year-end
1999 result represents the transactions of 104 ISDA members. Counting
data only from the 71 institutions that participated in both the mid-year
and year-end surveys indicated a slightly larger second-half increase
of 12.2%.
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1998 YEAR-END ISDA MARKET SURVEY
The International Swaps and Derivatives Association
reported that outstanding interest rate swaps, currency swaps and interest
rate options grew 38% in the second half of 1998 to $50.997 trillion in
notional principal at year-end.
On a year-to-year basis the increase measured
76%. Outstanding contracts amounted to $36.974 trillion notional at midyear
1998 and $29.035 trillion at the close of 1997. The 1998 yearend figures
represent the transactions of 102 ISDA members as compiled by Arthur Andersen.
When looking at the data for institutions that reported in both surveys,
84 in total, the increase in the notional principal outstandings for that
group was 35%, consistent with the overall increase.
"Despite the reduction in risk taking positions
by major financial institutions and hedge funds at the end of 1998, the
survey results reflect the surge in demand for derivatives for hedging
purposes," commented Thomas Montag, ISDA vice chairman and chair of its
market survey committee, who is a managing director at Goldman Sachs &
Co.
ISDA officials said that, in the future,
ISDA will report only summary notional principal outstanding information
semiannually since the Bank for International Settlements has begun to
collect detailed global derivatives statistics semiannually.
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1997 YEAR-END ISDA MARKET SURVEY
The International Swaps and Derivatives Association
(ISDA) reported that privately negotiated derivatives contracts outstanding
worldwide at December 31, 1997 stood at $29.035 trillion in notional principal,
or 14.1% higher than at the close of 1996, and that activity over the
full year grew 24.8% to $22.181 trillion notional despite a second-half
downturn.
The notional principal of outstanding transactions
gained 1.1% in the second half of 1997 as compared with a 12.9% increase
in the first six months. Although the use of swaps to hedge currency volatility
surged in the last six months of 1997, aggregate activity for all transaction
types in the last half of the year dropped 39.5% below the first half.
"Strong increases in both activity and outstandings
that characterized the first half of 1997 were offset in the second half,
reflecting the sharp decline in Asian business," said Thomas K. Montag,
co-chairman of ISDA's market survey committee who is a managing director
at Goldman, Sachs & Co. in London.
Compiled by Arthur Andersen LLP from data
on transactions submitted by 77 ISDA member dealers around the world,
the survey covered three major categories of customized derivatives that
are transacted by institutional investors on the wholesale financial markets
- interest rate swaps, currency swaps and interest rate options. The average
contract of an outstanding interest rate swap was $37 million in notional
principal; $36 million for an average outstanding currency swap agreement.
Notional principal, the base amount for calculating
the exchange of payments between counterparties in swaps and interest
rate options contracts, is the yardstick used by ISDA to track market
behavior. Financial risk amounts to a small fraction of the notional principal,
typically from around 2% on gross to 1% on net, based on ISDA studies
of replacement value.
For interest rate swaps, the outstandings
were $22.291 trillion notional at the end of 1997, up 16.3% from 1996
and 1.0% higher than $22.115 trillion at midyear. Activity totaled $17.067
trillion notional for the full year, 24.8% above 1996. Second-half activity
declined 41.9% to $6.275 trillion from $10.792 trillion in the first half.
For interest rate options, comprising caps,
collar, floors and swaptions, year-end outstandings amounted to $4.920
trillion, up 4.2% from $4.723 trillion at the end of 1996. The outstandings
declined 2.3% in the second half of 1997 from $5.033 trillion at June
30 to $4.920 trillion at December 31. Activity in interest rate options
for the full 12 months increased 19.2% to $3.978 trillion from $3.337
trillion the previous year despite a second-half fall of 45% to $1.412
trillion from $2.567 trillion in the first half.
For currency swaps, adjusted for both sides
of transactions, year-end 1997 outstandings grew 16.9% to $1.824 trillion
from $1.560 trillion in 1996 and 15.1% over $1.585 trillion at midyear.
Activity totaled $1.135 trillion, a 49.5% year-to-year increase. Activity
transacted in the second half of 1997 amounted to $672.3 billion compared
to $463.1 billion in the first half, a 45.2% increase in the second half
of 1997.
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1996 YEAR-END ISDA MARKET SURVEY
The International Swaps and Derivatives Association's
(ISDA) market survey for 1996 year-end showed that the notional volume
of transactions reported by ISDA members in all of the major categories
of privately negotiated derivatives as outstanding at the close of 1996
rose 43.7% to $25.453 trillion. New business activity in the 12-month
period grew 59.1% over the previous year to $17.774 trillion.
From June 30 to December 31, 1996, transactions
outstanding in interest rate swaps, currency swaps and interest rate options
increased 21% and new business activity rose 14%.
"Aside from specific situations in certain
regions and generally tighter spreads, advances in risk management techniques
and greater understanding of how to use them continued to sustain the
growing market for these instruments," said Thomas K. Montag, chairman
of ISDA's market survey committee and a London-based partner at Goldman,
Sachs & Co.
For interest rate swaps, the year-end 1996
outstandings amounted to $19.171 trillion, up 49.6% from $12.811 trillion
a year earlier and 23% higher than $15.584 trillion at midyear. The notional
volume of new business activity increased to $13.678 trillion in 1996
from $8.699 trillion in 1995, $7.158 trillion of it in the second half
and $6.520 trillion in the first half.
The notional volume of outstanding interest
rate options -- caps, collars, floors and swaptions -- totaled $4.723
trillion at Dec. 31, 1996 against $4.190 trillion at June 30 and $3.704
trillion at the end of 1995, a year-to-year increase of 27.5% with 12.7%
of it in 1996's second half. Activity totaled $3.337 trillion for the
year, up 65.6%, of which $1.922 trillion was transacted in the second
half and $1.416 trillion in the first six months.
For currency swaps, the outstanding notional
volume at the end of 1996 stood at $1.560 trillion, a gain of 30.3% from
$1.197 trillion at the end of 1995 and 20.5% higher than $1.295 trillion
at June 30, 1996. Activity for the full 12 months was $759.1 billion (repeat
billion) compared with 1995's $455.1 billion, a 66.8% increase. Activity
amounted to $385.1 billion in the second half and $374 billion (repeat
billion) in the first half.
Notional principal, the base amount for calculating
the exchange of payments in swaps and interest rate options contracts,
is the yardstick that ISDA uses to track market behavior. The financial
risk in these transactions amounts to a small fraction of the notional
principal, typically ranging from approximately 2% on gross to 1% on net,
based on ISDA studies of replacement value.
The Arthur Andersen accounting firm compiled
the survey from data provided by 83 ISDA member dealers in Asia, Australia,
Europe and North America. They reported 633,316 transactions outstanding
at year-end 1996 compared with 430,842 at the close of 1995. Analysis
showed that adjusting the dollar conversions for fluctuations in exchange
rates would not materially change the reported results.
The survey covers privately negotiated contracts
for interest rate swaps, currency swaps and interest rate options under
which two parties agree to exchange cash flows. Not included are securities
with embedded derivative characteristics such as mortgage-backed obligations
or futures and options traded on exchanges.
Interest rate swaps accounted for 75.3% of
the reported outstandings and 77% of the year's new business activity.
Of the interest rate swaps outstanding, transactions in U.S. dollars accounted
for 30.4% compared with 34% the previous year. Japanese yen represented
23.2%, Deutschemarks 13% and French francs 8.1%.
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1995 YEAR-END ISDA MARKET SURVEY
In July 1996 ISDA announced the findings
of its market survey of swaps and other privately negotiated derivatives
transactions in 1995. Compiled by the Arthur Andersen accounting firm
from data provided by 71 ISDA member dealers around the world, the results
indicated strong gains in all sectors of the business.
Transactions outstanding in interest rate
swaps, currency swaps and interest rate options at the close of 1995 stood
at $17.713 trillion in notional principal, up 56.7 % from $11.303 trillion
at year-end 1994. The survey found that the total of outstandings in the
second half climbed 27.2% from the first half -- 18.4% for interest rate
swaps, 15.2% for currency swaps and 79.3% for interest rate options. The
aggregate notional principal of new business activity in 1995 rose 37.3%
to $11.169 trillion from the previous year's $8.133 trillion.
For interest rate swaps, which dominate activity
in privately negotiated derivatives, year-end outstandings increased 45.3%
to $12.811 trillion from $8.816 trillion at the close of 1994 and 18.4%
from $10.817 trillion at midyear 1995. The notional volume of new business
for the year grew 39.4% to $8.699 trillion from 1994's $6.241 trillion.
Second-half activity amounted to $5.270 trillion, up 53.7% from $3.429
trillion in the preceding six months.
Interest rate options -- caps, collars, floors
and swaptions-- that were outstanding at year-end 1995 stood at $3.704
trillion compared with $2.066 trillion at mid-year and $1.573 trillion
a year earlier, a gain of 136% for the full year and 79.3% for the second
half. New transactions in interest rate options grew 33.2% to $2.015 trillion
from $1.513 trillion. Activity in the second half amounted to $1.340 trillion,
almost double the $675.8 billion volume of activity in the first six months.
Currency swaps also registered gains. Contracts
outstanding at the close of 1995 amounted to $1.197 trillion, up 15.1%
from $1.040 trillion at mid-year and up 30.9% from $914.8 billion at the
close of 1994. Activity in currency swaps for the full 12 months of 1995
totaled $455.1 billion, a 20% increase over $379.3 billion in the previous
year. Second-half activity nearly doubled to $301.3 billion from $153.8
billion in the first half.
Notional principal, the yardstick that ISDA
uses to track market behavior, is the base amount for calculating cash
flows in swaps and interest rate options contracts. The financial risk
involved in these transactions amounts to a small fraction of the notional
principal, between 1% to 2% in ISDA's studies of replacement value.
"The growing market clearly reflects
recognition that privately negotiated derivatives have become a major
risk management tool to hedge financial uncertainty in business and investment
portfolios," said Gay Evans, chairman of ISDA and a managing director
of Bankers Trust International.
Regarding interest rate options, Tom Montag,
vice chairman of ISDA who co-chairs the market survey committee and is
a partner at Goldman, Sachs & Co., said, "The robust activity in
these options can largely be attributed to increased mortgage hedging,
increased market volatility and the general pickup in business."
To realize the effects of translating the
survey's results into U.S. dollars for reporting purposes, ISDA analyzed
historical survey data results, applying constant exchange rates. This
analysis eliminates the portion of the reported increase due to a change
in exchange rates and indicates the growth attributable to the increased
volume in that particular transaction type in the currency. Based on constant
exchange rates and using year-end 1995 exchange rates, the outstandings
reported by ISDA for interest rate and currency swaps totaled $13.657
trillion versus the outstandings for interest rate and currency swaps
of $14.008 trillion. The difference between the total outstanding numbers
for 1995 was 2.57%.
However, the results reported by individual
currencies between 1991 and 1995 differed substantially when analyzed
individually. Outstanding currency and interest rate swap transactions
in Japanese yen were reported as having grown 369.8% between 1991 and
1995. In constant exchange rate terms, however, the growth was 278.9%.
Other currencies where the reported growth rates and the constant exchange
rate growth rates differed included Deutsche mark currency and interest
rate swap outstandings which grew 363.8% in constant exchange rate terms
(versus the reported 400.9% growth) between 1991 and 1995. Transactions
in other currencies also showed differences but did not impact the overall
reported numbers because they represented a small percentage of the market.
"We are pleased to see that the total
reported outstandings are representative of the market when viewed in
U.S. dollar terms and in constant exchange rate terms," commented
Robert Schwartz, executive vice president at Republic National Bank and
co-chairman of the ISDA market survey committee.
Based on information provided by participating
swaps dealers in Asia, Australia, Europe and North America, there were
430,842 swaps transactions of all types outstanding at the close of 1995
compared with 306,197 at the same point a year earlier.
The ISDA survey covers privately negotiated
contracts under which two parties agree to exchange cash flows. Not included
are securities with imbedded derivative characteristics such as mortgage-backed
obligations and structured notes. Also not part of the survey are exchange-traded
futures and options contracts.
Interest rate swaps transactions in U.S.
dollars accounted for 34% of the year-end outstandings and 33% of the
full year's activity. Currencies other than the U.S. dollar accounted
for the remaining two-thirds of the world's interest rate swaps activity
and outstandings. Japanese yen came next with 26% of all activity in interest
rate swaps followed by the French franc (13%) and the Deutschemark (11%).
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