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LONDON, April 21 (IFR) - Equity derivatives saw their share of the exchange-traded derivatives market fall below 50% for the first time on record during 2016, data from the World Federation of Exchanges show.
The annual review of listed derivatives markets, based on statistics from 47 exchanges globally, shows overall growth of more than 2% across all asset classes, driven by demand for commodity derivatives and increased activity in interest rate and currency contracts.
Equity derivatives retained their position as the largest product group, representing 45% of the overall market, but their share continued to decline after peaking in 2011. A total of 11bn equity derivatives contracts were traded over global exchanges in 2016, down 11% on the previous year.
Europe and Asia led the losses, with equity derivatives volumes down by over 20% in each region. US activity defied the malaise, rising by 5.5% as investors traded around the US presidential election and positioned for the Trump reflation trade, which is expected to provide support to equity markets.
Stock index options suffered the most acute declines with volumes down 26% at 2.8bn contracts. Index options traded over US exchanges, however, were up almost 50% for the year. That helped to cushion a sharp fall in Asia-Pacific, where a 41% decline in activity drove the region’s market share in the products to fall to under 60% from over 75%.
India was the biggest contributor to the slump as index options traded over the National Stock Exchange of India fell by 45% to just over 1bn contracts. At the other end of the spectrum, CBOE posted a 64% increase in index options, while the Moscow Exchange recorded a 55% jump.
ETF options provided a rare bright spot. With volumes up almost 7%, the products accounted for around 15% of total listed equity derivatives volumes. A total of 1.7bn of the contracts changed hands over the year, dominated by the Americas, with a 38% jump in activity on BATS Global Markets and a 34% increase on the Montreal Exchange.
Commodity derivatives were the biggest gainers, with volumes up 28% at 6.8bn contracts as investors rushed to hedge volatile oil prices. A strong 2016 adds to a long-term growth trajectory for the products, which have experienced a 22% compound annual growth rate since 2005 according to WFE.
“The swing from equity to commodity derivatives in the Asia-Pacific region is a particularly interesting shift, and one we started to see in 2015,” CEO of WFE Nandini Sukumar said in a statement. “This trend towards commodity derivatives is also mirrored in EMEA and the Americas, with growth of 57% and 13%, respectively, supported by strong growth in agriculture, base metal and energy contracts.”
Commodity derivatives trading was centred on three exchanges with the Dalian Commodity Exchange, the Shanghai Futures Exchange and CME Group accounting for over 62% of volume for the year. All three exchanges posted double-digit growth in commodity contracts while the Moscow Exchange saw volumes almost triple.
Growth in currency derivatives followed close behind commodities with a 27% CAGR since 2005. Volumes were up over 10% in 2016 with Asia-Pacific leading the charge. Interest rate derivatives volumes were up 5.5% with all regions contributing to the growth. (Reporting by Helen Bartholomew)