While the Canadian derivatives market encompasses a relatively small share of global turnover, it plays an important role in the Canadian economy. Derivatives provide an effective means for companies to manage the risks arising from fluctuations in interest rates, commodity and equity prices and FX rates, as well as enabling investors to express a market view, diversify their portfolio and enhance returns. Derivatives also facilitate transparency, price discovery and market efficiency.
This paper provides detailed analysis of the Canadian OTC and exchange-traded derivatives markets. Specifically, it explores the size of the market, trends in trading volumes split by product and currency and the major market players. The paper also covers the regulatory framework governing OTC derivatives in Canada, including the implementation of reforms agreed by the Group-of-20 (G-20) nations. Finally, it outlines progress on the transition from the Canadian Dollar Offered Rate (CDOR) to the Canadian Overnight Repo Rate Average (CORRA).
Key highlights include:
Turnover of OTC FX derivatives and IRD reported by sales desks in Canada totaled $4.4 trillion in April 2022 versus $1.8 trillion in April 2010 on a net-gross basis. The growth was driven by FX derivatives, which accounted for 67.2% of total turnover in April 2022.
Average daily turnover of FX derivatives reported by sales desks in Canada grew significantly to $148.0 billion in April 2022 compared to $43.6 billion in April 2010, making Canada the eighth largest FX derivatives trading location in the world. FX derivatives turnover in Canada rose to 2.1% of global turnover in April 2022 versus 1.4% in April 2010.
Global average daily turnover of FX derivatives with Canadian dollar on one side of a trade totaled $337.5 billion in April 2022, accounting for 3.1% of global FX derivatives average daily turnover on a net-net basis, making it the sixth most traded currency. More than half of these transactions were with cross-border counterparties.
Average daily turnover of IRD reported by sales desks in Canada totaled $72.2 billion in April 2022 compared to $41.7 billion in 2010, making it the eighth largest IRD trading location in the world. Average daily turnover of OTC IRD in Canada accounted for 1.3% of global OTC IRD turnover in April 2022 versus 1.6% in April 2010.
Global average daily turnover of Canadian-dollar-denominated IRD totaled $63.2 billion in April 2022, accounting for 1.1% of global IRD average daily turnover. Canadian dollar ranks as the sixth largest IRD currency in the world. Most global IRD transactions denominated in Canadian dollars were traded in Canada.
The Canadian exchange-traded derivatives market has seen substantial growth over the past decade. The combined total trading volume for futures and options reached 150.5 million contracts in 2022 from 44.3 million in 2010. Combined open interest rose to 13.3 million contracts from 3.6 million over the same period.