Corporate Treasuries

Thomas C Deas, Jr, Jeffrey L Steiner and Luke Zubrod

Since its start in the early 1980s, the over-the-counter (OTC) derivatives market has grown into the largest financial market in the world, with outstanding transactions totalling nearly US$500 trillion in notional amounts.¹¹ According to the most recent semi-annual BIS statistics (for 2H 2015), the derivatives market is now US$493 trillion. Transactions between swap dealers and other financial intermediaries represent most of the trades, with non-financial end-users comprising less than 10% of derivatives activity.²² Cite ISDA report. However, much of the trading by financial intermediaries can be assumed to be transactions to balance risk positions that originated with end-user trades.

The exponential growth in the derivatives market came in significant part from end-users in the real economy needing to hedge their exposures to changes in interest rates, commodity prices and foreign exchange rates, along with credit exposures to customers or suppliers, exposures to equity prices, and other commercial risks they face in their day-to-day business operations. OTC derivatives can be matched exactly as to timing, currency, rates or amounts of the underlying exposures in ways that