Media Release Survey of Foreign Exchange and Derivatives Markets

Background

In April 2001 the Reserve Bank conducted a survey of activity in foreign exchange and over-the-counter (OTC) derivatives markets in Australia. This was part of a global survey of 48 countries, co-ordinated by the Bank for International Settlements (BIS). Similar surveys have been conducted on a three-yearly basis since 1989.

The results for the turnover survey for Australia are summarised below and in the attached tables. Central banks from other countries participating in the survey are also releasing their results today. These results are available on web sites of participating central banks, as well as via a direct link from the BIS website (www.bis.org/publ/rpfx01.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 associated with aggregating both sides of a given transaction between respondents located in different countries. A clearer picture of the size of the global markets is given by the BIS release of global results which are adjusted for cross-border double counting, and are now also available at its website.

Results

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

Foreign exchange transactions covered in the tables on foreign exchange turnover include spot and forward foreign exchange transactions, and foreign exchange swaps.^[1] Currency options and cross-currency interest rate swaps are incorporated in the derivatives part of the survey.

The main findings of the foreign exchange part of the survey are:

• Foreign exchange turnover in Australia for all currencies averaged US$52 billion per day in April 2001, an increase of 11 per cent over April 1998. Turnover in Australian dollars averaged US$27 billion per day, an increase of 14 per cent over April 1998. Turnover of third currencies against the US dollar averaged US$24 billion per day, an increase of 13 per cent over the same period. Activity in Australia was boosted by the relocation by a number of global players of their Asian time zone foreign exchange business to Australia.
• The AUD/USD remained the most traded currency pair in Australia, accounting for 53 per cent of all transactions, broadly in line with results reported in 1998. The USD/JPY was the second most traded currency pair, accounting for 14 per cent of all transactions; this too remains in line with 1998.
• The rise in turnover was accounted for entirely by a large increase in swap transactions. Swaps turnover rose by over 40 per cent between 1998 and 2001, and now accounts for 68 per cent of all transactions. This is up sharply from just over 50 per cent in 1998. Outright forward transactions also rose, though there was a decline in spot market turnover. Some of this fall probably reflects the growing use of electronic brokers in the spot market, which has reduced the need for inter-bank trading.
• Transactions between foreign exchange dealers and their customers accounted for 11 per cent of total turnover, not much changed from the 1998 figures. But there was a significant shift in the relative importance of trading between resident and overseas dealers. The majority of transactions – 65 per cent – occurred between resident dealers and overseas banks, up from just over 50 per cent in 1998. Transactions between resident dealers (including internal transactions) made up about one-quarter of turnover, down from about one-third in 1998.
• The proportion of foreign exchange market transactions conducted through brokers continued to rise, up from 11 per cent in 1998 to 12.5 per cent in 2001. An increasing proportion of the market is being transacted through the electronic brokering services, at the expense of the traditional voice brokers.
• Market concentration has declined slightly, after increasing between 1995 and 1998. In April 2001, the ten largest dealers accounted for 76 per cent of total market turnover, compared with 80 per cent in 1998.

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

The main findings of the derivatives part of the survey are:

• Total derivatives turnover averaged US$12 billion per day in April 2001, more than 2½ times the turnover in the previous survey in 1998.
• Foreign exchange derivatives accounted for 18 per cent of the turnover. Turnover in these instruments increased by 24 per cent between 1998 and 2001, to an average of around US$2 billion per day.
• Turnover in interest rate derivatives contracts rose sharply, from US$3 billion per day in 1998 to US$10 billion per day in April 2001. The increased use of both forward rate agreements and swaps drove most of this rise. Forward rate agreements accounted for 56 per cent of all interest rate derivative transactions, with a further 41 per cent accounted for by swaps. The use of options remains relatively small, at only US$0.3 billion per day.