Shrinkage Takes Aussie Dealers By Surprise

Credit, equity and fx derivative volumes fell dramatically over the last year in Australia, despite over-the-counter market growth of 20%, according to a survey by the Australian Financial Markets Association. Dealers were stunned by the results, although a moderate downturn was on the cards due to tight credit spreads and other unfavorable market conditions over the last year, the scale of the drop off was a shock. According to AFMA's survey, OTC equity derivative volumes fell by nearly 52%, credit by 35% and fx options by 37%.

The double-digit fall in credit derivative volumes in particular was a surprise for dealers. "It's surprising volumes have fallen that much, but there's been a definite slowdown in single-name CDS," said a credit head at an international house in Sydney.

Interest in OTC equity derivatives waned due to a shift to exchange-traded derivative products, which saw a pickup of 32%. While for the fx market, the specter of the National Australia Bank options scandal last year that brought about multimillion dollar trading losses (DW, 1/25/04) no doubt had an effect on the market, noted officials.