Turnover - April 2016

In April 2016 the Bank of Italy conducted the customary triennial survey of the volume of foreign exchange and OTC derivatives market transactions carried out by the major resident banks. The survey was performed by 52 central banks and monetary authorities, and coordinated by the Bank for International Settlements (BIS). In this press release the Bank of Italy is releasing the national results, as the other participating institutions are doing in their respective countries; at the same time, the BIS will release the preliminary global findings after adjusting for cross-border double-counting (http://www.bis.org/publ/rpfx16.htm).

The Italian survey was conducted on a sample of 34 banks (31 Italian banks and 3 branches of foreign banks). According to the information contained in the supervisory reports transmitted to the Bank of Italy, these banks’ activities account for between 95 and 97 per cent of the transactions made in the foreign exchange and derivatives markets, a similar share to that reported in 2013. The data refer to the entire month of April and are computed daily, dividing the total by the number of trading days in the month (20); they are adjusted to eliminate double-counting of transactions between local dealers but not cross-border double-counting, which is done by the BIS.

In April 2016 the total volume of foreign exchange and derivatives transactions carried out by the whole banking system amounted to $367 billion, down from $494 billion in 2013 (Table 1). For the total of foreign exchange market plus interest rate derivatives products, the monthly volume came to $657 billion, against $994 billion in 2013.

The volume of foreign exchange transactions contracted by around one fourth ($127 billion) compared with 2013, though it did increase its contribution to overall turnover (to 52.6 per cent, compared with 47.6 per cent). In the forward segment, which incorporates outright forwards and FX swaps, turnover fell from $334 billion to $296 billion, while in the spot segment it declined from $139 billion to $49 billion. At 3.2 per cent, currency swaps and options increased their contribution to overall turnover (these transactions amounted to $21 billion, same as in 2013). The volume of interest rate derivatives products declined from $500 billion to $291 billion, and their share of total turnover fell from 50.3 to 44.2 per cent.

According to the data provided by the sample, swaps remain the most widespread instrument, accounting for the largest share of volume in both the foreign exchange market ($276 billion; Table 2) and the interest rate derivatives market ($224 billion; Table 3). While in the interest rate derivatives market the share of forward rate agreements fell to $54 billion, from $188 billion in 2013, in the foreign exchange market the volume of outright forwards rose to $18 billion and their share of the total to 5 per cent (3 per cent in 2013). Compared with 2013, the volume of interest rate options fell by more than 70 per cent (from $14 billion to $4 billion), while foreign exchange options contracted by about 21 per cent (to $13 billion, from $16 billion in 2013); in 2016 these transactions accounted for 1 per cent of turnover in the interest rate derivatives market and 4 per cent in the foreign exchange market.

The euro continued to dominate the dollar as the currency of choice for foreign exchange market contracts (81 versus 74 per cent in 2016, and 84 versus 69 per cent in 2013) in both the spot and forward segments (Table 2; Figure 1). The currency pair euro/dollar accounted for 69 per cent of total transactions against the euro (70 per cent excluding the spot market). In other currency pairs, accounting for 19 per cent of total transactions, the US dollar continued to be by far the most dominant. The interest rate derivatives market was dominated by the euro, which accounted for more than 93 per cent of all contracts, while the contribution of other currencies was very modest (Table 3; Figure 2).

Activity in both the foreign exchange and interest rate derivatives market again included a high proportion of transactions with non-resident banks, though it did decline to 61 per cent from 73 per cent in 2013 (Table 4 and Figure 3). Transactions with resident banks increased from 10 to 12 per cent. The share of transactions with other financial institutions not taking part in the survey increased in both markets (from 6 to 20 per cent overall), while transactions with non-financial counterparties almost halved in the foreign exchange market (from 10 to 6 per cent).