UK builds on leading global position in interest rate OTC derivatives market

• UK share of global interest rate OTC derivatives turnover rises to 46% in April 2010 from 44% in April 2007

• Market value of global credit default swaps cut by two thirds

• London-based derivatives exchanges set for record year in 2010

• Key priority of providers and users is that regulatory reform achieves balance between safe markets and users' ability to manage risks

The UK reinforced its predominant position in the global market for interest rate OTC derivatives trading in April 2010. The report Derivatives 2010 from TheCityUK, the independent membership body promoting the UK financial and related professional services industry, indicated that the UK's share of global turnover has risen to 46% in April 2010 from 44% in April 2007. Over the longer term its share is up from 35% over the nine years since 2001.

The notional value of global OTC derivatives has been broadly stable in the 18 months to mid-2010: it follows a 13% drop in the immediate aftermath of the financial crisis. Gross market value fell by 39% from $35.3 trillion to $21.5 trillion during 2009 but then picked up by 15% to $24.7bn in the first half of 2010.

A combination of centralised clearing, netting and reduced spreads has cut the size of the global credit defaults swaps (CDS) market. Gross market value of CDS has dropped by nearly two thirds from $5.1 trillion to $1.7 trillion in the 18 months to mid-2010.

By contrast, trading of exchange traded derivatives has been recovering: up by a half globally from the low point of $366 trillion in Q1 2009 to $555 trillion in Q2 2010. The value of trading at NYSE Liffe exchanges in Europe is second only to the Chicago-based CME Group.

London-based exchanges - NYSE Liffe, London Metal Exchange (LME) and ICE Futures Europe - are each heading for a record year in number of contracts traded in 2010. NYSE Liffe and ICE Futures Europe have already surpassed 2009 highs (of 1,056m and 166m, respectively) with 1,147m and 201m contracts traded in the first 11 months of 2010. The LME, with 110m contracts in the first 11 months is set to surpass its 2008 high of 113m contracts during December.

Duncan McKenzie, Senior Manager Economic Research at TheCityUK, said:

"Providers and users of derivatives are concerned that regulatory reform in the US and EU achieves a balance between on the one hand delivery of safe and sound markets and on the other  the ability of users to manage risks effectively."