Triennial Survey of Foreign Exchange Market and Derivatives Market Activity in April 2004
Analysis of the figures for France – Press release
|
The international survey of foreign exchange and OTC derivatives transactions is carried out
every three years. It is coordinated by the Bank for International Settlements (BIS). Data
relating to the Paris financial centre are collected by the Banque de France.
The salient findings of the 2004 survey on the Paris financial centre are as follows:
– A recovery in turnover on traditional foreign exchange markets (for spot transactions,
outright forwards and foreign exchange swaps): following the 33% decline recorded in
2001, net daily turnover (adjusted for local double-counting) stood at 64.0 billion in US
dollar equivalent 1 (USDE) in April 2004, as compared with USDE 48 billion in April 2001
(+33%).
– A sharp rise in over-the-counter (OTC) derivatives market activity: daily turnover amounted
to USDE 155.3 billion, i.e. 2.3 times that of 2001. Overall, activity expanded at the same
pace for currency and interest rate derivatives. Turnover increased for all instruments;
interest rate swaps were the most heavily traded instruments, with a net daily turnover of
USDE 117.8 billion or 77% of total activity on OTC derivatives markets.
– A change in the currency breakdown: in April 2004, the USD/EUR currency pair accounted
for 47% of trading volumes on the Paris financial centre’s traditional foreign exchange
market (compared with 66% three years before), and 60% of trading in foreign exchange
derivatives (compared with 50% in 2001). The euro accounted for 65% of interest rate
derivative contracts (as compared with almost 75% in 2001) and the dollar accounted for
20% (compared with 16% in 2001).
– Increased market concentration: the ten main banks of the Paris financial centre now capture
96% of total turnover on forex and OTC derivatives markets, compared with 89% in 2001.
Aggregate global results are published by the Bank for International Settlements (BIS) today.
They may be consulted on its website: www.bis.org/publ/rpfx04.htm
|
1. Overall developments A rise in activity for all the instruments surveyed
Trading on forex and OTC derivatives markets
Net daily turnover
|
|
(USD billions)
|
|
|
|
|
In the Paris financial centre in April 2004, net daily turnover in traditional foreign exchange
instruments – for spot transactions, outright forwards and foreign exchange swaps – increased by 33%,
amounting to USDE 64.0 billion, compared with USDE 48 billion in 2001. This rise came after the
decrease recorded in 2001, as a result of the disappearance of legacy currency transactions within the
euro area, and banking sector consolidation. It was fuelled in particular by the increased
hedging activity observed since 2001 in an environment of low yields that has induced prudence in
market participants.
The rise in OTC derivatives (foreign exchange and interest rate) market activity was much more
pronounced: it in fact doubled between April 2001 and April 2004, increasing from a net daily average
of USDE 66.8 billion to USDE 153.8 billion. This is the sharpest triennial rise recorded since the start
of the survey.
2. Traditional foreign exchange transactions
Breakdown of traditional foreign exchange business
Based on net daily notional amounts
|
|
(as a %)
|
|
|
|
|
Average daily turnover in traditional foreign exchange instruments, which amounted to 96% of total
foreign exchange turnover in 2004, increased by 33% to USDE 64.0 billion; nevertheless it remains
below the 1998 average daily turnover (USDE 71,9 billion). Turnover in foreign exchange swaps,
which rose by 23% to USDE 46.5 billion a day, continued to be predominant, even though its share in
total traditional foreign exchange turnover was down to 73% in 2004 from the 79% recorded in 2001.
In fact, daily turnover increased more sharply for other types of traditional foreign exchange
instruments, expanding by 49% to USDE 13 billion for spot transactions and by 204% to
USDE 4.6 billion for outright forwards.
While the USD/EUR pair remained the foremost currency pair, its share in total foreign exchange
transactions dropped sharply from 66% in 2001 to 47% in 2004. It continued to account for 57% of
spot transactions, as it did in 2001, but its share for outright forwards and foreign exchange swaps
decreased significantly, amounting, respectively to 63%, after 77% in 2001, and to 43%, after 67% in
2001. For the latter category of instruments, the decrease may be ascribed to the increasing need for
hedging due to the drop in the dollar against the main global currencies (the share of the USD/GBP
and USD/CHF currency pairs thus more than doubled between 2001 and 2004, increasing from 6% to
13%, and 5% to 13% respectively for foreign exchange swaps).
Lastly, 39% of the traditional foreign exchange trading volumes recorded correspond to transactions
with counterparties located within the euro area.
3. OTC derivatives (foreign exchange and interest rate)
Turnover has risen by a factor of 2.3 in three years
At less than 2% of total turnover in the OTC derivatives surveyed, average daily turnover in foreign
exchange derivatives remained limited despite the increase by a factor 3.3 to USDE 1.0 billion in
currency swap trading volumes. The 12% rise to USDE 1.6 billion in currency option transactions was
the smallest rise in turnover recorded for all the different types of instruments surveyed.
Between April 2001 and April 2004, daily average turnover in interest rate derivatives increased by
132% : it amounted to USDE 151.3 billion as compared to 65.1 billion for the previous survey.
Interest rate swaps, which accounted for 78% of this amount, were up by 111%. Daily turnover in
forward rate agreements (FRA) stood at USDE 28.6 billion, i.e. 4.3 times more than in the 2001
survey.
The euro remains the most heavily traded currency on the interest rate derivatives market in the Paris
financial centre, with 65% of total turnover, as compared to 75% in 2001. This market share varies
depending on the type of instrument considered: 73% for swaps (compared to 77% in 2001), 53% for
interest rate options (compared to 69% in 2001) and 33% for FRA (compared to 58% in 2001). The
US dollar comes second with 20% (compared to 16% in 2001), followed by the pound sterling (8% as
compared to 3% in 2001) and the Swedish krona (3% as compared to less than 1% in 2001). The yen
is used in only 1% of transactions (compared to 3% in 2001).
Lastly, 54% of trading volumes in interest rate derivatives correspond to transactions with
counterparties located within the euro area.
Breakdown of OTC derivative business
Based on net daily notional amounts
|
|
(as a %)
|
|
|
|
|
4. Market concentration
Banking sector consolidation on forex and OTC derivatives markets continued in 2004: the first ten
banks in the Paris financial centre accounted for 96% of total turnover recorded in April 2004, as
compared with 89% in 2001, 80% in 1998 and 75% in 1995.
The first five banks account for 78% of turnover (as compared with 70% in 2001), with a market share
that varied depending on the type of instrument considered: 77% for interest rate swaps, 79% to 91%
for traditional foreign exchange instruments, and up to 98% for currency and interest rate options.
In addition, transactions between reporting banks accounted for 76% of total traditional foreign
exchange transactions; other financial institutions accounted for 17% of the market and non-financial
customers for 7%. These percentages have not changed from 2001.
By contrast, on the derivatives markets, the share of transactions between reporting banks in total
transactions surveyed decreased from 81% in 2001 to 68% in 2004.
5. Survey context and methodology
The 2004 issue of the BIS-coordinated global survey on foreign exchange and OTC derivatives was
carried out by 52 countries or financial centres, each analyzing activity on their respective markets,
with a view to increasing the transparency of these markets, and, hence, gaining a better understanding
of their characteristics within the international financial system.
The Banque de France was in charge of centralizing data collected from the main institutions on the
Paris OTC market. The April 2004 activity survey was conducted among 40 institutions according to
their resident status, irrespective of the nationality of participating banks.
The 2004 survey is divided into two parts:
– Data on "traditional" foreign exchange activity (spot transactions, outright forwards and foreign
exchange swaps);
– Reporting of OTC foreign exchange and interest rate derivatives transactions: currency swaps,
currency options, forward rate agreements (FRA), interest rate swaps and interest rate options (see
the definitions in appendix).
The format of the 2004 Survey included two refinements of the reporting procedures:
– The basis of reporting was the location of the sales desk of the trade instead of the trading desk;
– Cross-border trades conducted as back-to-back deals or purely for internal bookkeeping or internal
risk management purposes were excluded, as were trades between local desks or offices of a
reporting dealer.
Results are given on the basis of net average daily turnover after adjustment of local double counting.
The global consolidated results of the survey are also published today by the Bank for International
Settlements. They make it possible to assess global developments on forex and OTC derivatives
markets, as well as the relative shares of the various markets.
6. Definitions
Foreign exchange instruments
Spot transaction: single outright transaction involving the exchange of two currencies at a rate agreed
on the date of the contract for value or delivery (cash settlement) within two business days.
Outright forward: transaction involving the exchange of two currencies at a rate agreed on the date
of the contract for value or delivery (cash settlement) at some time in the future (more than two
business days later). This category also includes forward foreign exchange agreement transactions
(FXA), non-deliverable forwards and other forward contracts for differences.
Foreign exchange swap: transaction which involves the actual exchange of two currencies (principal
amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (the “short
leg”), and a reverse exchange of the same two currencies at a date further in the future at a rate
(generally different from the rate applied to the short leg) agreed at the time of the contract (the “long
leg”).
Currency swap: contract which commits two counterparts to exchange streams of interest payments
in different currencies for an agreed period of time and to exchange principal amounts in different
currencies at a pre-agreed exchange rate at maturity.
Currency option: option contract that gives the right to buy or sell a currency with another currency
at a specified exchange rate during a specified period. This category also includes exotic foreign
exchange options such as average rate options and barrier options.
Single-currency interest rate derivatives
Forward rate agreement (FRA): interest rate forward contract in which the rate to be paid or
received on a specific obligation for a set period of time, beginning at some time in the future, is
determined at contract initiation.
Interest rate swap: agreement to exchange periodic payments related to interest rates on a single
currency; can be fixed for floating, or floating for floating based on different indices. This group
includes those swaps whose notional principal is amortized according to a fixed schedule independent
of interest rates.
Interest rate option: option contract that gives the right to pay or receive a specific interest rate on a
predetermined principal for a set period of time.
1The US Dollar is used as a numeraire for the Survey. Therefore the fall of the dollar against most currencies between April 2001 and April 2004 is partly responsible for the rise of the level of turnover recorded.
Turnover in April 2004
Foreign Exchange
Derivatives
|
