Media Release Survey of Foreign Exchange and Derivatives Markets

Number 2004-10

Date 29 September 2004

Background

In April 2004 the Reserve Bank conducted a survey of activity in foreign exchange and over-the-counter (OTC) derivatives markets in Australia. This was part of a global survey of 52 countries, co-ordinated by the Bank for International Settlements (BIS). Similar surveys have been conducted on a three-yearly basis since 1989.

Participating central banks are releasing their national survey results today. Direct links to national publications, and the BIS's press release summarising the global turnover results, are available from the BIS website at www.bis.org/publ/rpfx04.htm.

Results for the Australian market are summarised below and in the attached tables.

A significant change in this year's survey has been the refinement of the definition of turnover to exclude certain related-party transactions. Cross-border trades conducted as back-to-back deals or purely for internal bookkeeping or internal risk management purposes were excluded, as were trades between the local desks or offices of a respondent (ie. internal or in-house deals). For the Australian market, this change in methodology is estimated to have lowered turnover by around 20 per cent.

Australia's foreign exchange and derivatives markets have experienced a sharp increase in activity since the last triennial survey in 2001.

1. Foreign Exchange (Tables 1, 2 and 3)

Transactions covered in the tables on foreign exchange turnover include spot, foreign exchange forwards and foreign exchange swaps^[1]. Currency options and cross-currency interest rate swaps are incorporated in the derivatives part of the survey.

Foreign exchange turnover in Australia increased sharply between 2001 and 2004. In April 2004, turnover averaged US$81 billion per day, compared with US$52 billion per day in April 2001, an increase of 56 per cent. The rise reflected both a pickup in international demand for A$ denominated assets and valuation effects reflecting the appreciation in the Australian dollar over the period. (At the time of the 2001 survey, the applicable exchange rate was just under US50 cents; this had risen to US75 cents at the time of the 2004 survey.) The increase in turnover resulted despite the exclusion of certain related party transactions from this year's survey data (see above).
Transactions with the Australian dollar on one side accounted for around half of all turnover in Australia, much the same as for the previous two surveys. The remaining 50 per cent of turnover in the Australian market was against currencies that do not involve the Australian dollar. The notable increase was in euro trading. Transactions involving the euro accounted for 20 per cent of all transactions, compared with 13 per cent in April 2001.
Spot transactions were 93 per cent higher than in April 2001. Outright forwards and foreign exchange swaps both increased by 43 per cent.
Transactions between resident dealers and overseas banks increased by 84 per cent, and now account for more than three-quarters of all turnover. Customer transactions also grew strongly (60 per cent).
Market concentration has increased since 2001. In April 2004, the ten largest dealers accounted for 85 per cent of total market turnover, compared with 76 per cent three years earlier.

2. OTC Currency and Interest Rate Derivatives (Tables 4 and 5)

Total derivatives turnover in Australia averaged US$18 billion per day in April 2004, an increase of 47 per cent on the turnover in the previous survey.
Foreign exchange derivatives turnover more than doubled to US$5 billion per day, with currency options accounting for more than 70 per cent of the increase.
Turnover in interest rate derivatives increased from US$10 billion per day in 2001 to US$13 billion per day in April 2004. The strongest growth was in interest rate swaps, up 64 per cent on the previous survey.
Derivatives transactions between resident dealers and overseas banks averaged US$10 billion per day, an increase of 90 per cent on the previous survey. These transactions accounted for 55 per cent of total derivatives turnover in April 2004, compared with 43 per cent three years earlier.

Enquiries

Guy Debelle
Head of International
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 8400

Chris Becker
Manager, Market Analysis
International Department
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 8465

Footnote

Note that only one leg of a swap contract is recorded to avoid double counting the transaction. [1]

Table 1: Australian Foreign Exchange Market Activity ^(a)(b)
Average Daily Turnover, US$ billion
By Type of Transaction	April 1995	April 1998	April 2001	April 2004
Outright Spot
– against AUD	5.6	8.3	6.5	11.4
– against Other Currencies	12.1	11.2	6.7	14.2
Total	17.6	19.6	13.2	25.5
Outright Forward
– against AUD	0.8	1.5	2.3	3.1
– against Other Currencies	0.5	1.0	1.2	1.9
Total	1.3	2.5	3.5	5.0
Swaps
– against AUD	10.0	13.8	18.1	24.9
– against Other Currencies	10.6	10.7	17.2	25.3
Total	20.6	24.5	35.3	50.3
TOTAL TURNOVER	39.5	46.6	51.9	80.8
(a) Adjusted for resident dealer double counting. (b) Any discrepancies between the total and sum of constituent items reflect rounding.

Table 2: Foreign Exchange Turnover in Australia By Currency Pair ^(a)
Per cent of total turnover
Currency Pair	April 1995	April 1998	April 2001	April 2004
AUD/USD	42.0	48.2	49.4	44.7
EUR/USD	–	–	11.4	17.0
USD/DEM	21.7	13.5	–	–
USD/JPY	13.3	16.0	14.0	12.7
GBP/USD	7.0	5.4	6.4	6.2
NZD/USD	3.2	6.7	9.0	6.0
USD/CAD	0.8	0.7	2.7	3.2
USD/CHF	2.6	0.9	1.2	1.3
(a) From April 1998, adjusted for resident dealer double counting. April 1995 data based on gross turnover.

Table 3: Foreign Exchange Turnover of Australian Dealers by Counterparty ^(a)(b)
Average Daily Turnover, US$ billion
Outright Spot
	April 1995	April 1998	April 2001	April 2004
– Customers	4.2	2.9	2.0	3.7
– Resident dealers	3.6	6.5	3.2	2.1
– Overseas banks	9.8	10.2	8.0	19.7
Total	17.6	19.6	13.2	25.5
Outright Forward
– Customers	0.7	0.8	1.1	1.8
– Resident dealers	0.1	0.8	0.7	0.4
– Overseas banks	0.4	0.9	1.6	2.8
Total	1.3	2.5	3.5	5.0
Swaps
– Customers	4.0	2.6	2.4	3.3
– Resident dealers	4.3	8.4	8.7	7.3
– Overseas banks	12.4	13.6	24.1	39.6
Total	20.6	24.5	35.3	50.3
TOTAL FOREIGN EXCHANGE	39.5	46.6	51.9	80.8
(a) Adjusted for resident dealer double counting. (b) Any discrepancies between the total and sum of constituent items reflect rounding.

Table 4: Australian OTC Derivatives Activity ^(a)(b)
Average Daily Turnover, US$ billion
Foreign Exchange Derivatives
	April 1995	April 1998	April 2001	April 2004
– Cross currency interest rate swaps	0.3	0.4	0.5	1.2
– Options	0.8	1.3	1.6	3.6
Total	1.0	1.7	2.1	4.9
Interest Rate Derivatives
– Forward rate agreements	2.0	1.5	5.5	5.6
– Swaps	0.5	1.3	4.0	6.7
– Options	0.3	0.1	0.3	0.5
Total	2.8	2.8	9.8	12.8
TOTAL OTC DERIVATIVES	3.8	4.6	12.0	17.6
(a) Adjusted for resident dealer double counting. (b) Any discrepancies between the total and sum of constituent items reflect rounding.

Table 5: OTC Derivatives Turnover by Counterparty ^(a)(b)
Average Daily Turnover, US$ billion
1. Foreign Exchange Derivatives
	April 1995	April 1998	April 2001	April 2004
Cross Currency Interest Rate Swaps
– Customers	*	0.2	0.2	0.4
– Resident dealers	0.1	0.1	0.1	0.1
– Overseas banks	0.1	0.1	0.2	0.7
Total	0.3	0.4	0.5	1.2
OTC Options
– Customers	0.2	0.3	0.4	0.8
– Resident dealers	0.1	0.3	0.3	0.3
– Overseas banks	0.4	0.7	1.0	2.5
Total	0.8	1.3	1.6	3.6
TOTAL FOREIGN EXCHANGE DERIVATIVES	1.0	1.7	2.1	4.9

2. Interest Rate Derivatives
Forward Rate Agreements
– Customers	0.4	0.5	1.3	1.1
– Resident dealers	1.3	0.7	2.5	1.7
– Overseas banks	0.3	0.2	1.7	2.8
Total	2.0	1.5	5.5	5.6
Swaps
– Customers	0.1	0.4	0.6	2.1
– Resident dealers	0.2	0.5	1.4	1.3
– Overseas banks	0.3	0.4	2.1	3.3
Total	0.5	1.3	4.0	6.7
OTC Options
– Customers	0.2	0.1	0.1	0.1
– Resident dealers	*	*	0.1	0.1
– Overseas banks	*	*	0.1	0.4
Total	0.3	0.1	0.3	0.5
TOTAL INTEREST RATE DERIVATIVES	2.8	2.8	9.8	12.8
TOTAL OTC DERIVATIVES	3.8	4.6	12.0	17.6
(a) Adjusted for resident dealer double counting. (b) Any discrepancies between the total and sum of constituent items reflect rounding. * Indicates amounts less than US$50 million.