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11 December 2016

December 2016 BIS Quarterly Review: Delving deeply into currency and derivatives markets

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The December BIS Quarterly Review finds that differences in the regulations applying to different classes of derivatives partly explain why central clearing has become more entrenched in OTC interest rate derivatives markets than in other OTC markets

Trading on global currency and over-the-counter derivatives markets continues to grow, but why are some segments thriving while others fall back? The December 2016 issue of the BIS Quarterly Review examines the data collected earlier this year from close to 1,300 banks and other dealers in 52 jurisdictions as part of the Triennial Central Bank Survey of foreign exchange and OTC derivatives markets, the most comprehensive snapshot of the size and structure of these markets. Three underlying themes emerge, said Hyun Song Shin, Economic Adviser and Head of Research: changes in the role and composition of market participants, the evolving role of emerging market economy (EME) currencies and monetary policy as a driver of market developments. These developments can in turn have an impact on the real economy. "What happens in financial markets does not always stay in financial markets," Mr Shin said.

The December BIS Quarterly Review also finds that the increase in global bond yields over the last few months has not caused major disruption in financial markets. Equity markets rallied and yields rose further as markets priced in a greater likelihood of fiscal expansion after the US presidential election. However, EME assets came under pressure. "Developments during this quarter stand out for one reason: for once, central banks took a back seat," said Claudio Borio, Head of the Monetary and Economic Department. "It is as if market participants, for once, had taken the lead in anticipating and charting the future, breaking free from their dependence on central banks' every word and deed."

Full Quarterly Review

© BIS - Bank for International Settlements

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