Derivatives Trades on Exchanges Rose 24% in Quarter, BIS Says

Derivatives Trades on Exchanges Rose 24% in Quarter, BIS Says

http://www.bloomberg.com/apps/news?pid=20601085&sid=a18F7U_Fx0k0&refer=europe

By Darrell Hassler

June 11 (Bloomberg) -- Derivatives traded on global exchanges rose 24 percent in the first quarter to a record $533 trillion on growing use of interest rate futures, currency futures and stock index options, the Bank for International Settlements said today.

The bank, based in Basel, Switzerland, calculates the figure based on the underlying value of the currency, bonds or stocks linked to the contracts, or their notional value. The 24 percent increase reflects a rise over the first quarter of 2006, as well as over the fourth quarter of last year. The previous record, set in the second quarter of 2006, was $485 trillion.

``Rapid trading during the turbulence in international financial markets in late February and March boosted growth in equity and foreign exchange contracts,'' BIS analysts Goetz von Peter, Ryan Stever and Christian Upper said in the report.

A selloff of stocks in China sparked declines in stock markets globally on Feb. 27, including the biggest decline in four years in the Standard & Poor's 500 stock index. U.S. government bonds also surged as investors, fearing a global economic slowdown, sought less risky assets.

Trading of interest rate futures on exchanges rose 21 percent to $346.2 trillion and interest rate options rose 26 percent to $120.5 trillion. Stock option index transactions increased 35 percent to $33.1 trillion. Volume of foreign currency futures and options rose 26 percent to $5.9 trillion.

Hedging Price Changes

The Chicago Mercantile Exchange, the biggest U.S. derivatives exchange, said on April 24 that its net income rose 42 percent to $130 million in the first quarter as trading in interest rate futures, its biggest product, rose 25 percent to a record 3.6 million contracts a day. The Merc is competing against Atlanta-based Intercontinental Exchange Inc. to buy the Chicago Board of Trade, the second biggest U.S. derivatives exchange.

A derivative is a financial obligation whose value is derived from interest rates, the outcome of specific events or the price of underlying assets such as debt, equities and commodities. Companies and investors use them to hedge against, or speculate on, price changes.

Derivatives include futures, which are agreements to buy or sell assets at a set date and price, and options, which are the right but not the obligation to do so. The derivatives market is measured by the so-called notional value of the assets on which the contracts are based.