Korea's OTC derivatives trade hit $14.36 tn in 2021, nine times of GDP

[Photo by MK DB]

South Korea’s over-the-counter (OTC) derivatives market grew about 6.6 percent last year from the previous year to the extent of overwhelming the country’s economy by nine times amid active hedging against rising interest rate and U.S. dollar.

The combined turnover of OTC derivatives, such as interest rate swaps and currency forwards, amounted to 18,146 trillion won ($14.36 trillion) in 2021, up 1,127 trillion won from 2020, according to the data from the Financial Supervisory Service (FSS) Wednesday. The market has become nine times larger than the country’s nominal gross domestic product of 2,057 trillion won of last year.

Commercial banks make up primary traders of derivatives, mostly targeting currency and interest rate-related derivatives to hedge against price fluctuation risk and credit risk of financial products such as stocks, bonds, and currencies.

Last year’s turnover of currency-related OTC derivatives came to 13,776 trillion won, nearly 76 percent of the total, and that of interest rate-related derivatives was 4,117 trillion won, accounting for 22.7 percent. The turnover of stock-related and credit-related OTC derivatives was 194 trillion won (1.1 percent) and 18 trillion won (0.1 percent), respectively.

The amount of contracts outstanding in the OTC derivatives market last year was 11,305 trillion won, up by 13.8 percent or 1,370 trillion won from a year earlier. Most of them were interest rate-related derivatives with 6,984 trillion won (61.8 percent), followed by currency-related derivatives with 4,150 trillion won (36.7 percent), credit-related derivatives with 73 trillion won (0.6 percent), and stock-related derivatives with 68 trillion won (0.6 percent).

By trader, banks represented 78.9 percent of the total with 14,323 trillion won, followed by securities firms with 2,780 trillion won (15.3 percent), and trust companies with 875 trillion won (4.8 percent).

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