Is the OTC derivatives market growing…or shrinking? A recent Bloomberg BusinessWeek piece helps provide an answer.
The article reports on ISDA’s OTC Derivatives Market Analysis, Year-End 2012, which pulls together data from a variety of sources to show the impact of some key trends, like clearing, portfolio compression and netting, on the underlying market.
Over the past five years, OTC derivatives notional amount outstanding (excluding FX transactions) is up 6.7% from year-end 2007 to year-end 2012, according to the BIS. If you eliminate the double-counting of cleared transactions (which occurs because one bilateral contract becomes two cleared contracts), it’s down 17.5%.
BUT: if you then add back in the $214.3 trillion of notional that has been eliminated via portfolio compression over the past five years, the OTC derivatives market has increased 23%.
Shorter-term, the picture is a little different. The total OTC derivatives market (excluding FX) declined 3.3% from year-end 2011 to year-end 2012. After eliminating the double-counting of cleared transactions, the decrease was 10.9%. If you take this number and add back in the impact of portfolio compression, the market was roughly flat year-over-year.
Another interesting stat from the Market Analysis has to do with the level of risk exposures in the OTC derivatives market. At year-end 2012, gross market values (a more appropriate measure of risk than notionals outstanding) were 3.9% of notionals.
Netting significantly reduces those exposures; gross credit exposures after netting were 0.6% of notionals. Factor in the widespread collateralization of OTC derivatives and the uncollateralized exposure after netting is about 0.2% of the notional outstanding.
We know that going through all of these numbers is a bit of a tough slog. But it’s important to realize that sometimes there’s more to the story than what appears on the surface.
So the real answer is: more and less.
Latest
A Global Blueprint for Market Risk Reform
The global financial crisis of 2007-2009 exposed fundamental weaknesses in how banks measured and managed risk, and the repercussions were felt by economies all over the world. In response, policymakers sought to rebuild trust and resilience in the global financial...
SwapsInfo Q3 2025 and Year-to-September 30, 2025
Trading activity in interest rate derivatives (IRD) and credit derivatives increased in the third quarter of 2025 compared with the same period in 2024, reflecting shifting monetary policy expectations and broader market conditions. IRD traded notional rose by more than...
ISDA Extends Saudi Arabia Netting Opinions
ISDA has extended its netting opinions for Saudi Arabia to cover regulations published by the Capital Market Authority (CMA) earlier this year that recognize the enforceability of close-out netting. The CMA regulations were published in July, and follow similar rules...
ISDA Publishes ISDA SIMM® Methodology, Version 2.8+2506
ISDA has published the ISDA SIMM® Methodology, version 2.8+2506, which is effective from December 6, 2025. This version of the SIMM includes updates based on the calibration of the main delta risk weights and other parameters using data up to...
