The Changing Shape of Interest Rate Derivatives Markets

13 Pages Posted: 22 Dec 2016

See all articles by Torsten Ehlers

Torsten Ehlers

Bank for International Settlements (BIS)

Egemen Eren

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: December 11, 2016

Abstract

We analyse recent developments in over-the-counter (OTC) interest rate derivatives markets using the results of the 2016 BIS Triennial Central Bank Survey. Overall, turnover in both OTC and exchange-traded markets has expanded moderately since 2013. The average daily turnover of US dollar-denominated instruments has nearly doubled, driven by contracts with short maturities. Turnover of euro-denominated instruments has halved. We argue that monetary policy has been an important factor behind these changes. Despite a tightening of US monetary policy, activity in long-maturity US dollar contracts has remained subdued, which we attribute to reduced hedging demand from government-sponsored enterprises. Regulatory reforms have continued to influence market structure. To date, OTC markets have not lost market share to exchanges. In fact, regulatory changes are making OTC markets more similar to exchanges.

JEL Classification: E43, G15, G18, G21, G23

Suggested Citation

Ehlers, Torsten and Eren, Egemen, The Changing Shape of Interest Rate Derivatives Markets (December 11, 2016). BIS Quarterly Review December 2016. Available at SSRN: https://ssrn.com/abstract=2887811

Torsten Ehlers (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Egemen Eren

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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