The Bank for International Settlements reported that growth in the over-the-counter derivatives market slowed in the second half of 2006 to a pace in line with the long-term average rate of increase of the market.

Notional amounts of all types of OTC contracts rose by 12% to US$415 trillion at the end of December, after a 24% increase in the first half of the year.

Growth remained very strong in the credit segment, where the notional amounts of outstanding credit default swaps increased by 42%, but it fell to rates in the range of 5% to 11% in other risk categories. Along with rapid growth in credit default swaps, the BIS noted solid growth in interest rate products, lower growth in FX derivatives, slowing growth in commodity and equity derivatives, and that market concentration is low, but increasing.

Gross market values, which measure the cost of replacing all existing contracts and thus represent a better measure of risk at a given point in time than notional amounts, remained roughly stable at US$10 trillion at the end of December 2006, the BIS said. Gross credit exposures due to OTC derivatives, after netting agreements, were also stable at US$2 trillion.