Global OTC derivatives markets saw a broad-based decline in activity in the second half of 2015. The fall in notional amounts was accompanied by a sharp drop in the gross market value of outstanding derivatives contracts, which provides a more meaningful measure of amounts at risk. Central clearing, which is a key element in global regulators' agenda for reforming OTC derivatives markets to reduce systemic risks, continued to make inroads. T
Market participants can reduce their exposure to counterparty credit risk through netting agreements and collateral. Gross credit exposures account for such risk mitigation by adjusting gross market values for legally enforceable bilateral netting agreements, although they do not take account of collateral.
Trade compression to eliminate redundant contracts was the major driver of the decline in notional amounts. The overall volume of compressions continued to grow in the second half of 2015, mainly reflecting the greater clearance of interest rate swaps and other contracts through central counterparties.
Indeed, the distribution of interest rate derivatives by counterparty points to a continued shift in activity towards CCPs. Central clearing is a key element in global regulators’ agenda for reforming OTC derivatives markets to reduce systemic risks.
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