Media Release Survey of Foreign Exchange and OTC Derivatives Turnover

Number 98-12

Date 29 September 1998

Background

In April 1998, the Bank conducted a survey of foreign exchange and OTC derivatives activity in Australia as part of a global survey of 43 countries co-ordinated by the Bank for International Settlements (BIS). The foreign exchange part of the survey was similar to surveys conducted in 1989, 1992 and 1995, while a similar survey of OTC foreign exchange and interest rate derivatives turnover was conducted in 1995. Unlike the 1995 survey, information on exchange-traded derivatives has not been collected. The foreign exchange part of the survey covers all foreign exchange dealers operating in Australia in April 1998 – a total of 66 dealers – while the derivatives part of the survey was completed by a total of 55 institutions which dealt in foreign exchange or interest rate derivatives in April 1998.

A separate survey of outstanding derivatives contracts was conducted as at end June 1998. Results of this survey will be released by the BIS in December.

Results for the turnover survey are summarised below and in the attached tables. Other central banks participating in the survey will also be releasing their national data over the next couple of days. Some countries' media releases will be available via a direct link from the BIS Web site (www.bis.org/publ/r_fx98.htm).

It should be noted that a simple aggregation of the data released by each country would overstate the size of foreign exchange and derivatives markets globally. This is because of the double counting of transactions between survey respondents located in different countries. A clearer picture of the size of the global markets will be available next month when the BIS releases preliminary global results, adjusted for cross-border double counting.

Results

1. Foreign Exchange (Tables 1, 2 and 3)

To maintain consistency with previous surveys, foreign exchange activity is defined as spot and forward foreign exchange transactions and foreign exchange swaps. Currency options and cross-currency interest rate swaps are incorporated in the derivatives part of the survey. Figures for foreign exchange forwards and swaps are repeated in the OTC derivatives tables.

The main findings of the foreign exchange part of the survey are summarised below.

Foreign exchange turnover in Australia for all currencies averaged US$47 billion dollars per day in April 1998, an increase of 18 per cent over April 1995. Turnover in Australian dollars averaged US$24 billion per day, an increase of 45 per cent over 1995. Turnover of third currencies against the US dollar averaged US$22 billion per day, an increase of only 2 per cent.
The most traded currency pair remains AUD/USD, which accounted for 54 per cent of transactions, up from 42 per cent in 1995. USD/JPY has taken over from USD/DEM as the second most traded currency pair. USD/JPY transactions accounted for 14 per cent of the total.
Spot transactions accounted for 42 per cent of total turnover, a little lower than in 1995. Swap transactions accounted for 53 per cent, while outright forward transactions accounted for 5 per cent. Outright forward transactions nearly doubled in absolute terms between April 1995 and April 1998.
The majority of foreign exchange swaps are transacted for short periods. 71 per cent of swaps transacted in April 1998 were for periods of 7 days or less, while 26 per cent were for maturities greater than 7 days, but less than a year. For outright forwards the proportions were reversed – 23 per cent were for periods of up to 7 days and 68 per cent were for periods between 7 days and a year.
Transactions between foreign exchange dealers and their customers accounted for 13 per cent of turnover. The majority of transactions – 53 per cent – occurred between dealers and overseas banks, while 34 per cent were inter-dealer transactions, including internal transactions. The counterparty breakdown of transactions presented in this survey is not comparable with previous surveys.
The proportion of transactions conducted through brokers fell from 25 per cent to 24 per cent between 1995 and 1998.
Market concentration has increased since 1995. In April 1998, the ten largest dealers accounted for 80 per cent of total market turnover, compared with 70 per cent three years earlier.

2. OTC Foreign Exchange and Interest Rate Derivatives (Tables 4 and 5)

The main findings of the OTC derivatives part of the survey are summarised below. As mentioned, figures include foreign exchange forwards and swaps which were also reported in the foreign exchange section.

Total OTC derivatives turnover averaged USM billion per day in April 1998, an increase of 23 per cent from 1995. Over 90 per cent of turnover was in foreign exchange derivative contracts.
Turnover of foreign exchange derivatives contracts increased by 26 per cent between 1995 and 1998, to US$29 billion per day. Activity was concentrated in foreign exchange swaps, which accounted for 85 per cent of derivatives transactions. Outright forwards accounted for 9 per cent of transactions, with options and cross currency swaps jointly making up 6 per cent of turnover.
Turnover in interest rate derivative contracts was unchanged between 1995 and 1998, at US$3 billion per day. Use of both forward rate agreements and options declined. This was offset by turnover in interest rate swaps, which more than doubled.
Unlike foreign exchange transactions, relatively few interest rate derivative contracts are transacted with overseas banks. A little under half are transacted between resident dealers, while one-third are transacted with customers.

Enquiries

Mr Darren Flood
Acting Senior Manager
International Department
Reserve Bank of Australia
SYDNEY

Phone: (02) 9551 8402

Table 1: Australian Foreign Exchange Market Activity^(a)(b)
Average Daily Turnover, US$ billion
By Type of Transaction		April 1989	April 1992	April 1995	April 1998
Outright Spot		18.0	12.6	17.6	19.6
of which:	– against AUD	9.1	3.5	5.6	8.3
	– against USD^(c)	8.3	7.8	10.2	10.0
Outright Forward		1.5	1.2	1.3	2.5
of which:	– against AUD	1.1	0.7	0.8	1.5
	– against USD^(c)	0.4	0.4	0.4	0.9
Swaps		9.4	15.1	20.6	24.5
of which:	– against AUD	5.7	7.4	10.0	13.8
	– against USD^(c)	3.6	7.7	10.6	10.7
TOTAL TURNOVER		28.9	29.0	39.5	46.6
of which transactions through brokers		9.7	9.4	9.8	11.0
(a) Adjusted for resident dealer double counting. (b) Any discrepancies between the total and sum of constituent items reflect rounding. (c) Does not include AUD/USD transactions.

Table 2: Foreign Exchange Turnover by Currency Pair^(a)
Per cent of total turnover
Currency Pair	April 1989	April 1992	April 1995	April 1998
AUD/USD	55.2	40.3	42.0	53.9
USD/JPY	9.3	17.8	13.3	14.3
USD/DEM	14.7	20.7	21.7	12.3
NZD/USD	2.2	1.3	3.2	5.8
GBP/USD	8.0	8.6	7.0	4.6
USD/CHF	5.1	2.5	2.6	0.8
(a) Gross turnover (i.e. not adjusted for resident dealer double counting).

Table 3: Foreign Exchange Turnover by Counterparty^(a)(b)
Average Daily Turnover, April 1998, US$ billion
Outright Spot
– Customers	2.9
– Resident dealers	6.5
– Overseas banks	10.2
TOTAL	19.6
Outright Forward
– Customers	0.8
– Resident dealers	0.8
– Overseas banks	0.9
TOTAL	2.5
Swaps
– Customers	2.6
– Resident dealers	8.4
– Overseas banks	13.6
TOTAL	24.5
TOTAL FOREIGN EXCHANGE	46.6
(a) Adjusted for resident dealer double counting. (b) Any discrepancies between the total and sum of constituent items reflect rounding.

Table 4: Australian OTC Derivatives Activity^(a)(b)
Average Daily Turnover, US$ billion
Foreign Exchange Derivatives
	April 1995	April 1998
Forwards^(c)	1.3	2.5
Swaps^(c)	20.6	24.5
Options	0.8	1.3
Cross currency interest rate swaps	0.3	0.4
TOTAL	22.9	28.8
Interest Rate Derivatives
Forward rate agreements	2.0	1.5
Swaps	0.5	1.3
Options	0.3	0.1
TOTAL	2.8	2.8
TOTAL OTC DERIVATIVES	25.7	31.6
(a) Adjusted for resident dealer double counting. (b) Any discrepancies between the total and sum of constituent items reflect rounding. (c) Also incorporated in foreign exchange transactions in Tables 1 to 3.

Table 5: OTC Derivatives Turnover by Counterparty^(a)(b)
Average Daily Turnover, April 1998
US$ billion
Foreign Exchange Derivatives
Outright Forward^(c)
– Customers	0.8
– Resident dealers	0.8
– Overseas banks	0.9
TOTAL	2.5
Foreign Exchange Swaps^(c)
– Customers	2.6
– Resident dealers	8.4
– Overseas banks	13.6
TOTAL	24.5
OTC Options
– Customers	0.3
– Resident dealers	0.3
– Overseas banks	0.7
TOTAL	1.3
Cross Currency Interest Rate Swaps
– Customers	0.2
– Resident dealers	0.1
– Overseas banks	0.1
TOTAL	0.4
TOTAL FOREIGN EXCHANGE DERIVATIVES	28.8

Interest Rate Derivatives
Forward Rate Agreements
– Customers	0.5
– Resident dealers	0.7
– Overseas banks	0.2
TOTAL	1.5
Swaps
– Customers	0.4
– Resident dealers	0.5
– Overseas banks	0.4
TOTAL	1.3
OTC Options
– Customers	0.1
– Resident dealers	–
– Overseas banks	–
TOTAL	0.1
TOTAL INTEREST RATE DERIVATIVES	2.8
TOTAL DERIVATIVES	31.6
(a) Adjusted for resident dealer double counting. (b) Any discrepancies between the total and sum of constituent items reflect rounding. (c) Also incorporated in foreign exchange transactions in Tables 1 to 3. – Less than US$50 million.