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.