Basics of Credit Derivatives

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Global Credit derivatives market

 

Updates:
The estimates for first half of 2005 put credit derivatives global volumes at above USD 12 trillion by first half of 2005. The data published by ISDS as of first half of 2005 goes as under. (Please do browse or search our news pages for regular stories on market data)

1H01
2H01
1H02
2H02
1H03
2H03
1H04
2H04
1H05

631.5
918.87
1,563.48
2,191.57
2,687.91
3,779.40
5,441.86
8,422.26
12,429.88

Original write up circa 2001

Comparative statistics of market volumes

A recent review by the Bank for International Settlements (BIS Quarterly Derivatives Review June 2002) summarised various estimates of market data as under:

 

BBA

BIS

ISDA

OCC

Risk

Frequency

Annual

Triennial

Semiannual

Quarterly

Annual

Elimination of double-Counting

No

Yes1

No

Yes2

No

Source of data

BBA member banks

Banks and dealers in Nearly 50 countries

ISDA members

US-chartered and insured

banks

Large dealers

Beginning of data collection

1997

1998 H1

2001 H1

1997 Q1

1998

Latest period

2000

2001 H1

2001 H2

2001 Q4

2001

Total contracts outstanding in first period

$180 billion

$118 billion

$632 billion

$19 billion

N/A

Total contracts outstanding in latest period

$893 billion

$693 billion

$919 billion

$395 billion

$810 billion

1 At holding company level. 2 At bank level.

 

Recent additions: 29th May 2001/ updated 2 March 2002

A report from Goldman Sachs says that the market as at end-2000 stood at a notional value of some USD 1000 billion - see news report here. By end of year 2001, the market has reached a volume of some USD 1.2 trillion.

 

Credit derivatives is said to be one of the fastest growing segments in global OTC derivatives market.

In Sept., 1998, the British Bankers Association predicted that the global credit derivatives market will be of USD 740 billion by end of 2000. However, as things actually stand out, there is a clear indication that the market volume will exceed the prediction.

In fact, in July, 2000, the British Bankers Assocation revised its estimates as well as predictions. It said that the global market estimates indicate that the credit derivatives market reached $586 billion at the end of 1999 and is expected to jump to $893 billion by the end of 2000, reaching $1581 billion by the year 2002. Based on previous BBA surveys this represents a 9-fold increase in the 5-year period 1997 to 2002.

Synthetic securitisations

One of the key developments in credit derivatives market in 2000 has been the use of credit derivatives along with securitisation, to create synthetic securities, that is, securities that amount to credit risk transfer to a pool of investors. For more on synthetic CDOs, click here.