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The changing shape of interest rate derivatives markets

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  • Torsten Ehlers
  • Egemen Eren

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.

Suggested Citation

  • Torsten Ehlers & Egemen Eren, 2016. "The changing shape of interest rate derivatives markets," BIS Quarterly Review, Bank for International Settlements, December.
    • Handle: RePEc:bis:bisqtr:1612f
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    References listed on IDEAS

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    1. Lawrence L Kreicher & Robert Neil McCauley, 2016. "Asset managers, eurodollars and unconventional monetary policy," BIS Working Papers 578, Bank for International Settlements.
    2. Abad, Jorge & Aldasoro, Iñaki & Aymanns, Christoph & D'Errico, Marco & Hoffmann, Peter & Langfield, Sam & Neychev, Martin & Roukny, Tarik & Rousová, Linda, 2016. "Shedding light on dark markets: First insights from the new EU-wide OTC derivatives dataset," ESRB Occasional Paper Series 11, European Systemic Risk Board.
    3. Christian Upper & Marcos Valli, 2016. "Emerging derivatives markets?," BIS Quarterly Review, Bank for International Settlements, December.
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    Cited by:

    1. Semyon Malamud & Andreas Schrimpf, 2016. "Intermediation Markups and Monetary Policy Passthrough," Swiss Finance Institute Research Paper Series 16-75, Swiss Finance Institute.
    2. Pawe³ Fiedor & Sarah Lapschies & Lucia Országhová, 2017. "Networks of counterparties in the centrally cleared EU-wide interest rate derivatives market," Working and Discussion Papers WP 7/2017, Research Department, National Bank of Slovakia.
    3. Lawrence L Kreicher & Robert Neil McCauley & Philip Wooldridge, 2017. "The bond benchmark continues to tip to swaps," BIS Quarterly Review, Bank for International Settlements, March.
    4. Torsten Ehlers & Bryan Hardy, 2019. "The evolution of OTC interest rate derivatives markets," BIS Quarterly Review, Bank for International Settlements, December.
    5. Robert Neil McCauley & Chang Shu, 2016. "Non-deliverable forwards: impact of currency internationalisation and derivatives reform," BIS Quarterly Review, Bank for International Settlements, December.
    6. Iñaki Aldasoro & Torsten Ehlers, 2018. "The credit default swap market: what a difference a decade makes," BIS Quarterly Review, Bank for International Settlements, June.
    7. Christian Upper & Marcos Valli, 2016. "Emerging derivatives markets?," BIS Quarterly Review, Bank for International Settlements, December.
    8. Marco D'Errico & Tarik Roukny, 2017. "Compressing Over-the-Counter Markets," Papers 1705.07155, arXiv.org, revised Jun 2019.
    9. D'Errico, Marco & Roukny, Tarik, 2017. "Compressing over-the-counter markets," ESRB Working Paper Series 44, European Systemic Risk Board.

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