Turnover - April 2010

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In April 2010 the Bank of Italy conducted the customary triennial survey of the volume of foreign exchange and derivatives market transactions carried out by the major resident banks, which the Italian Foreign Exchange Office had prepared up to 2007. This survey was performed simultaneously by 54 central banks and monetary authorities, co-ordinated by the Bank for International Settlements, which is to release the preliminary global results after adjusting for cross-border double-counting.

The Italian survey was conducted on a sample of 35 banks (33 Italian banks and 2 branches of foreign banks). Their share of the foreign exchange and derivatives markets is estimated at 88 and 92 per cent respectively, whereas the sample of the 2007 survey accounted for 82 and 92 per cent. The data are computed on a daily basis and are adjusted to eliminate double-counting of transactions between local dealers.

In April 2010 the total gross volume of foreign exchange transactions carried out by the whole banking system, taking into account the coverage of the sample, amounted to $707 billion, or $682 billion after adjusting for local double-counting (compared with $901 billion and $865 billion in 2007). The average daily turnover (21 trading days in April 2010) on an adjusted basis is estimated at $32 billion ($46 billion in 2007). For the total of foreign exchange market plus the interest rate derivatives products, gross volume in the month amounted to $1,460 billion, or $1,304 billion after adjusting for local double-counting (against $1,538 billion and $1,481 billion in 2007). Average daily turnover amounted to $62 billion on an adjusted basis ($78 billion in 2007).

The results of the 2010 survey reflect the global crisis and confirm the change in the structure of the over-the-counter (OTC) market found in the 2007 survey. Foreign exchange instruments, volume in which again exceeded that in interest rate products in 2007, continue to be the largest component of the OTC market, although they show a significant decline in both absolute and relative terms. The proportion of turnover from trades with international bank counterparties increased in the foreign exchange segment to the detriment of non-financial counterparties, while it declined in the interest rate segment to the benefit of domestic financial counterparties.

According to the data provided by the sample, the contribution of the foreign exchange market to total activity fell to 52 per cent, after the rise (from 36 to 58 per cent) recorded in 2007, owing to the contraction in the spot segment and especially the forward segment, whose turnover fell from around $563 billion to $453 billion. The contribution of foreign exchange derivatives to total turnover fell to 1 per cent. Alongside this drop, there was a modest increase in the market in interest rate derivatives, its volume rising from around $616 billion to $622 billion and its share of total turnover increasing from 42 to 48 per cent.

Swaps remained the most widespread type of instrument, accounting for the preponderant share of volume in both the forward exchange market (91 per cent, compared with 83 per cent in 2007) and the interest rate market (62 per cent, compared with 82 per cent). While in the foreign exchange market the volume of outright forwards fell by nearly a half in absolute terms, in the market in interest rates that of forward rate agreements increased more than threefold, accounting for 31 per cent of the market. The performance of options was negative. The volume of currency options fell to a third of its 2007 level, while interest rate options registered a more moderate decrease; their shares of turnover in the respective markets amounted to 2 and 7 per cent.

Activity in both the foreign exchange market and the interest rate derivatives market continued to be characterized by a high proportion of interbank transactions (97 per cent) and transactions with foreign counterparties (82 per cent), almost all of them banks. The share of transactions with resident banks remained unchanged in the foreign exchange market (4 per cent) while it rose in the interest rate market from 3 to 21 per cent. There were similar developments for other financial institutions, transactions with which accounted for 10 of total turnover in the foreign exchange segment and 19 per cent in the interest rate segment (12 and 8 per cent in 2007). Regarding domestic activity, the contribution of resident customers to foreign exchange turnover fell sharply (from 15 to 5 per cent), while their contribution to interest rate turnover remained marginal.

With regard to the distribution by currency, the dollar continued to account for the lion's share in both the spot and the forward foreign exchange markets. The currency pair euro/dollar accounted for around 81 per cent of total transactions against euros (85 per cent excluding the spot market). In the interest rate market, the contracts referring to the euro accounted for 98.5 per cent and contracts referring to the dollar, 1.4 per cent. Overall, transactions denominated in euros were predominant in both the foreign exchange and the derivatives markets, accounting for around 86 per cent of total turnover, as in 2007.