FIA: OTC derivatives clearing is making interest rate swaps look like futures

In September the BIS released the data from its most recent survey, which was based on reports submitted by almost 1,300 dealers in 53 countries. That data showed a huge increase in the turnover of interest rate derivatives. Between April 2016 and April 2019, average daily turnover rose from $2.7 trillion to $6.5 trillion, an increase of 143%, an order of magnitude larger than in previous years.

The BIS staff found that some of the huge growth in trading was driven by one-time factors such as changes in U.S. interest rate policy. They also noted that some of the growth was due to improvements in the collection of data, notably in the area of related-party trading. But the more important driver was structural change: the OTC interest rate derivatives market is becoming more exchange-like in the way that trading takes place.

“In general, structural developments like clearing, compression and automation remade OTC markets so that they more closely resembled exchanges,” the BIS staff commented. This contributed to the growth rate for OTC “significantly outpacing” the growth of trading on exchanges, which led to a “relative shift in trading from exchanges to OTC markets.”

The full article is available at

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