Canadian Derivatives See Mixed Results in Volume and Rates

Since the financial crisis, the Canadian derivatives market has seen mixed results but overall seems to be healthy and trending towards electronic trading, according to research from Celent.

In 2012, nine out of the ten largest derivatives exchanges in the world saw a decline in volume of contracts traded and/or cleared, but smaller exchanges fared better. Canada’s main derivatives market, TMX Montreal Exchange, the 17th largest in the world, saw a 3.8% gain with total volume at 209 million (In comparison, CME Group leads the world with a volume of nearly three billion.)

On the TMX, the volume of short-term interest rate (STIR) futures rose 7.5% in 2012, while open interest increased 18%. On the other side of the spectrum, STIR options fell in volume by 23.4% with open interest falling 18.6%. However, Celent anticipates 2013 will end up around 2011 levels, which had shown a recovery from the lows of the crisis.

For other exchange traded derivatives, 2012 saw index futures decline 8.5% in volume in 2012, while the open interest rose 12.3%. Celent sees these values holding relatively steady, with a minor decline in volume and a minor increase in open interest Equity options volumes fell slightly, 0.3%, while open interest tumbled 17.7%. 2013 should see a bounce back in open interest but a deeper decline in volume. Lastly, ETF options fared far better, with volume increasing by 14.4% and open interest gaining 11.4%, but both are expected to drop this year.

In the OTC market, foreign exchange (FX) volume bounced back from crisis lows, with outright forwards increasing by 67.6% from 2010 to 2013 and FX options growing by 44%. FX swaps also saw a 10% uptick during this time, but the FX spot market fell 14%. Interest rate swaps also saw a large decline, falling 23.6% in volume.

Celent also identified electronic trading growing in use, but it’s not something that has become the norm everywhere yet. For FX outright forwards, 60% of trades are still done via voice. Electronic trading is more common for FX swaps, with Reuters Matching/EBS multi-party system comprising 26% of volume for reporting dealers and direct single bank electronic trading systems with 24% for the same group; direct voice trading has a 28% volume share. For nonfinancial clients, electronic trading has barely caught on, with 90% of trading still happening as voice trading.