How Big is OTC really? Part 2: OTC shrank 20% in H1 2013

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Some of you may remember my post last year How Big is OTC Really? which aimed to puncture journalistic hype around such phrases as "the $600+ trillion global OTC derivatives market" when in fact we really have a "20+ trillion global OTC derivatives market".

OTC shrank 20% in H1 2013

OTC shrank by ~20% in six months from $25tn at end 2012 to $20tn market value by end H1 2013.  Previously OTC climbed from $21tn at end 2010 to $27tn by end 2011.  Since global GDP has been growing since 2010, we can assume that OTC declined substantially as a share of GDP in H1 2013.

Table: OTC Derivatives vs Global Financial Stock

Instrument

Global Market Value ($ trn)

 

H2 2010

H2 2011

H1 2012

H2 2012

H1 2013

Bonds

94

99

100

 

 

Loans

70

73

75

 

 

Equities

54

47

50

 

 

OTC Derivatives

21

27

25

25

20

Sources: Bonds, Loans, and Equities from McKinsey's report on financial globalization, OTC derivatives from BIS OTC market surveys of reporting banks from end 2011, end 2012 and mid 2013.

Why did it shrink?

The 2011 rise was caused by a reduction in long-term interest rates (IRS dominate market value and volumes).  All we know about the 2013 shrinkage is that IRS and CDS were the only asset classes reducing market value (BIS doesn't comment in their report and ISDA hasn't produced their own interpretation yet).  I'd speculate this was mostly due to valuation changes e.g. perhaps there was a rise in long-term rates.  Perhaps there were also some significant tear-ups in anticipation of Basel III e.g. via TriOptima.

Truth is though I don't really know.  Any views appreciated.

Why the old data?

Sorry but BIS figures come out at a 4 1/2 month lag to half-year end. SDRs and TRs will only contain a national / regional subset and CFTC seem so far to be focused on activity not risk (see Bill's post).  So don't hold your breath for an improvement.  There'll be another half-years worth along soon though.

 

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