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  • Global Derivatives Market

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    Rajan Nandola
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    The global derivatives market was approximately $109.5 trillion in December 2000, with $95.2 trillion in over-the-counter derivatives compared to $14.3 trillion exchanged-traded. Interest rate contracts made up the majority of over-the-counter derivatives due to growth in corporate bond markets and interest rate uncertainty. While both over-the-counter and exchanged-traded derivatives provide benefits, exchanged-traded derivatives are standardized and traded on exchanges, which provides market-wide risk management and reduces the possibility of systemic failure.

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    The global derivatives market was approximately $109.5 trillion in December 2000, with $95.2 trillion in over-the-counter derivatives compared to $14.3 trillion exchanged-traded. Interest rate contracts made up the majority of over-the-counter derivatives due to growth in corporate bond markets and interest rate uncertainty. While both over-the-counter and exchanged-traded derivatives provide benefits, exchanged-traded derivatives are standardized and traded on exchanges, which provides market-wide risk management and reduces the possibility of systemic failure.

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    5 views1 page

    Global Derivatives Market

    Uploaded by

    Rajan Nandola
    The global derivatives market was approximately $109.5 trillion in December 2000, with $95.2 trillion in over-the-counter derivatives compared to $14.3 trillion exchanged-traded. Interest rate contracts made up the majority of over-the-counter derivatives due to growth in corporate bond markets and interest rate uncertainty. While both over-the-counter and exchanged-traded derivatives provide benefits, exchanged-traded derivatives are standardized and traded on exchanges, which provides market-wide risk management and reduces the possibility of systemic failure.

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    © All Rights Reserved
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    Global Derivatives Markets

    The global derivatives industry: Outstanding contracts, (in $ billion)

    According to the Bank for International Settlements (BIS), the approximate size of global derivatives market was
    US$ 109.5 trillion (December 2000). This market consists of the exchange traded and over the counter traded
    derivatives.

    Globally the exchange traded derivative markets is smaller than the Over the counter derivatives market i.e. the
    derivatives, which are not traded on the exchange. The differential is as big as 80 billion USD. The total estimated
    notional amount of outstanding (OTC) Over the Counter contracts was at US$ 95.2 trillion compared to US$ 14.3
    trillion for the Exchange traded derivatives. The huge differential in outstandings can primarily be attributable to the
    continued rapid expansion of interest rate contracts owing to the growing corporate bond markets and increased
    interest rate uncertainty at the end of 2000.

    On the Turnover front for the exchange–traded derivatives contracts. The turnover in derivative contracts traded on
    exchanges during 2000 was at US$ 384 trillion. Interest rate futures and
    options accounted for nearly 90 per cent of total turnover during 2000.

    While both exchange-traded and OTC derivative contracts offer many benefits OTC derivatives are standardised in
    natures and form. This Standardisation is the main reason why derivatives become tradable over the exchange.
    Tradability on e exchange brings in a market wide risk management system in place. This makes the possibility of a
    systemic failure very less. It is because of the lack of such advantages that the highly leveraged institutions and their
    OTC derivative positions were the main cause of turbulence in financial markets in 1998.

    Turnover in derivatives contracts traded on exchanges, (in US$ trillion)

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