Decline in OTC derivatives for Singapore

Over-the-counter (OTC) derivatives turnover in Singapore has fallen 44% in the last three years, the Singapore Monetary Authority (MAS) has reported to the Bank for International Settlements (BIS). Average daily OTC derivatives turnover was $6.3 billion in April, a decline of US$4.9 billion from April 1998.

The MAS claims that European centres have been more dominant in OTC derivatives trading in April 2001, with most Asian Centres seeing a decline in OTC derivative volumes.

But Hong Kong appears to be an exception to this trend. The Hong Kong Monetary Authority (HKMA) reported an increase in average daily net turnover of OTC derivatives, a small fraction of its total turnover, by 9.4% to $4.2 billion. Mitchell Lim, head of Hong Kong dollar interest rate trading at Barclays Capital, said the increase was “probably due to the easing cycle in US dollar interest rates". "This then created certain volatilities in Hong Kong dollar interest rate movements and hence, advocated more OTC derivatives transactions in Hong Kong,” said Lim.

The survey results maintain Singapore as the third largest OTC derivatives trading centre in Asia-Pacific. The HKMA reported Hong Kong as maintaining its position as the eighth largest OTC derivatives trading centre in the region. The MAS reported that Singapore FX derivative activities averaged $3.1 billion daily, with OTC options continuing to be the most prevalent derivatives traded, averaging a daily turnover of $2.8 billion. Currency swaps amounted to $300 million in April 2001.

Singapore also maintained its position among the top four global FX centres, after the UK, the US and Japan. The average daily volume of FX trading in Singapore for April 2001 was $101 billion. The MAS reported that the decline of $27.6 billion from the average daily transactions volume of $139 billion in April 1998 is in line with global trends. Singapore’s FX market continues to be dominated by FX swaps, accounting for 57.3% of average daily turnover. Spot and outright forwards accounted for 34.3% and 8.4% of average daily turnover respectively. Major currencies dominate the transactions.

The Hong Kong Monetary Authority (HKMA) also reported a decline in net daily turnover of foreign exchange transactions which dropped by 15% to $66.8 billion, predominately as a result of a 39% decline in spot transactions to $19 billion. Forward transactions, which comprise a majority of the foreign exchange transactions, increased only marginally to $4.2 billion.

The MAS survey indicates trends of increased Singapore dollar trades. The average daily volume of Singapore dollar interest rate swaps traded in Singapore in April 2001 was $300.4 million, a significant increase from the 1998 data of $9.4 million. Similarly, average daily turnover for Singapore options against US dollars recorded a large increase from 65 million in April 1998 to $160.4 million in April 2001. The HKMA found that trading between the Hong Kong dollar and the US dollar also increased. This replaced the US dollar against the Japanese yen as the most heavily traded currency pair, both in foreign exchange and foreign exchange derivatives transactions.All figures are expressed in US dollars.