FINCAD – Derivatives market could be worth $700 trillion by year-end

On December 7th, 2010, posted in: Articles of Interest, Derivatives, Market Insight by admin

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The global derivatives market could expand significantly this year, a report prepared by advisory firm TABB Group says.

The company’s study, which was commissioned by the World Federation of Exchanges, estimates that $700 trillion in derivatives could be traded by the end of the year. At year-end 2009, the derivatives market was worth $615 trillion; at the middle of 2010, it contracted slightly to $583 trillion, according to TABB.

But with volatility on the rise in the currency and commodity markets – and more companies using derivatives to hedge their risk exposure – the derivatives market could be poised for significant growth.

Indeed, the Wall Street Journal quoted TABB senior analyst Paul Rowady as saying, derivatives may be used “as a key component of a broader risk-transfer mechanism for global financial firms, corporations and investment managers.”

But, the research firm cautioned, the new regulations mandated by the Dodd-Frank financial reform bill could crimp derivatives trading significantly. TABB estimates that the bill could require market participants to post up to $2.2 trillion of collateral against their derivatives trades.

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