Last Year’s OTC Derivatives Trading Volume Reached KRW 1,814.6 Trillion... Up 6.6% YoY

[Asia Economy Reporter Lee Jung-yoon] The scale of over-the-counter (OTC) derivatives transactions increased by 6.6% compared to the previous year.

According to the "2021 Financial Companies OTC Derivatives Transaction Status" announced by the Financial Supervisory Service on the 25th, the scale of OTC derivatives transactions by domestic financial companies last year was 1,814.6 trillion won, an increase of 6.6% (112.7 trillion won) from 1,701.9 trillion won the previous year.

The increase in transaction volume last year was due to the rise in currency forwards and interest rate swaps by 39 trillion won and 57.4 trillion won, respectively. Currency forwards are used as a means to reduce foreign exchange risk and refer to contracts to buy or sell a specific currency at a predetermined price at a future date. Interest rate swaps refer to transactions in which interest on a notional principal is periodically exchanged mutually to hedge interest rate risk.

As of the end of last year, the outstanding balance of OTC derivatives was 1,130.5 trillion won, up 13.8% (137 trillion won) from 993.5 trillion won at the end of the previous year. By product, interest rate-related transactions accounted for the largest share at 698.4 trillion won, or 61.8% of the total. By financial sector, banks accounted for the largest share at 910.2 trillion won (80.5%).

Looking at the OTC derivatives transaction status by underlying asset, currency-related transactions accounted for the largest share at 1,377.6 trillion won (75.9%) of the total OTC derivatives transaction volume. This was followed by interest rate-related transactions at 411.7 trillion won (22.7%), equity-related at 19.4 trillion won (1.1%), and credit-related at 1.8 trillion won (0.1%). Based on outstanding balances, interest rate-related transactions were 698.4 trillion won (61.8%), currency-related 415 trillion won (36.7%), credit-related 7.3 trillion won (0.6%), and equity-related 6.8 trillion won (0.6%).

Last year, the scale of currency-related OTC derivatives transactions was 1,377.6 trillion won, up 4% (52.6 trillion won) from 1,325 trillion won the previous year, and the outstanding balance was 415 trillion won, an increase of 22.9% (77.4 trillion won) from 337.6 trillion won at the end of the previous year. This increase is analyzed to be due to the rise in foreign exchange hedge demand caused by the increase in foreign trade volume following the global economic recovery.

Additionally, the scale of interest rate-related OTC derivatives transactions was 411.7 trillion won, up 16.7% (59 trillion won) from 352.7 trillion won the previous year, and the outstanding balance was 698.4 trillion won, an increase of 9.1% (58.1 trillion won) from 640.3 trillion won at the end of the previous year. Demand to hedge increased interest rate volatility due to the base interest rate hike.

By financial sector, banks accounted for the largest share of OTC derivatives transaction volume at 1,432.3 trillion won, or 78.9%. This was followed by securities at 278 trillion won (15.3%) and trusts at 87.5 trillion won (4.8%). Outstanding balances followed with banks at 910.2 trillion won (80.5%), securities at 179.8 trillion won (15.9%), and trusts at 20 trillion won (1.8%).

Last year, the scale of OTC derivatives brokerage and underwriting transactions by domestic financial companies was 28.76 trillion won, up 24.3% (5.63 trillion won) from 23.13 trillion won the previous year.

A Financial Supervisory Service official explained, "The increase in foreign trade volume due to the global economic recovery and the rising trend of domestic and foreign interest rates have increased interest rate volatility," adding, "Due to increased hedge demand for currency and interest rates by companies and financial companies, OTC derivatives transactions also showed an increasing trend." He further added, "There is a need to strengthen the risk management system related to OTC derivatives transactions."

This content was produced with the assistance of AI translation services.