The latest data from the Bank for International Settlements (BIS) over-the-counter (OTC) derivatives statistics shows a decrease in gross market value and gross credit exposure in the second half of 2021 versus the second half of 2020, but a slight increase in notional outstanding.
Gross market value and gross credit exposure significantly increased in 2020 due to pandemic-related market uncertainty. The decline in the second half of 2021 represents a return to pre-pandemic levels.
OTC derivatives notional outstanding rose by 2.8% at year-end 2021 compared to year-end 2020 and fell by 1.9% versus midyear 2021. Some of this change reflects a seasonal pattern, whereby notional outstanding tends to increase in the first half of the year and decline in the second half.
The gross market value of OTC derivatives contracts at year-end 2021 was 21.2% lower compared to year-end 2020 and 1.4% lower versus mid-year 2021. Gross credit exposure – gross market value after netting – decreased by 24.7% compared to year-end 2020 and fell by 6.6% compared to mid-year 2021.
Market participants reduced their mark-to-market exposure by about 79.6% at year-end 2021 due to close-out netting. This credit exposure is further reduced by the collateral that market participants post for cleared and non-cleared derivatives transactions.
Firms posted $323.4 billion of initial margin (IM) for cleared interest rate derivatives (IRD) and single-name and index credit default swaps (CDS) at all major central counterparties (CCPs) at year-end 2021. The 20 largest market participants (phaseone firms) collected $286.0 billion of IM for their non cleared derivatives transactions at year-end 2021.
Key highlights include:
- OTC derivatives notional outstanding increased by 0.5% at mid-year 2021 compared to mid-year 2020 and grew by 4.8% compared to year-end 2020.
- The gross market value of OTC derivatives contracts at the end of June 2021 was 18.5% lower than mid-year 2020 and 20.1% lower than year-end 2020.
- Gross credit exposure – gross market value after netting – decreased by 15.3% compared to mid-year 2020 and by 19.4% compared to year-end 2020.
- Market participants reduced their mark-to-market exposure by about 78.5% at mid-year 2021 due to close-out netting.
- Firms posted $318.4 billion of initial margin for cleared IRD and single-name and index credit default swaps at all major central counterparties at mid-year 2021.
Full report: Key Trends in the Size and Composition of OTC Derivatives Markets in the Second Half of 2021
Source: ISDA
