financial instruments chart, derivaties

In 2018, the value of the global over-the-counter (OTC) derivatives market continued a decline that began in the wake of the global financial crisis, according to new data from the Bank for International Settlements (BIS).

The BIS reports that the market value of OTC derivatives fell from $10.3 trillion (all figures in U.S dollars) in June 2018 to $9.7 trillion at the end of the year.

Market value for OTC derivatives has been declining since the financial crisis, the BIS said. By comparison, derivatives market value sat at $35 trillion at the end of 2008.

Additionally, gross credit exposures also dropped to their lowest level since the crisis in 2018, the BIS reported.

Gross credit exposure, which adjusts market values to reflect enforceable bilateral netting agreements, dropped to $2.3 trillion at the end of 2018.

The notional amount of OTC derivatives also declined from from $595 trillion in June 2018 to $544 trillion over the same period. The drop in notional value is being driven by a decline in U.S. dollar interest rate derivative contracts, the BIS said.

While interest rate derivatives have dropped significantly in the years since the crisis, the value of foreign exchange OTC contracts has remained relatively stable, it noted.

The BIS also reports that the share of OTC derivatives cleared through central counterparties remained near 75% for interest rate contracts, and 55% for credit default swaps (CDS), in the second half of 2018.

While central clearing has grown steadily since the crisis, that growth has levelled off over the past couple of years, the BIS said.

“The rise of central clearing has been an important structural change in OTC derivatives markets over the past decade,” the BIS said. “This change has gone hand in hand with an increase in trade compression — the elimination of economically redundant derivatives positions — both of which primarily affected interest rate contracts, driving down their market values.”

The BIS said that market values for foreign exchange contracts have been less affected by these developments.