Emerging FX derivatives turnover rises as investors hedge risk-BIS

Reuters

LONDON, Dec 8 (Reuters) - Investors seeking to cut exchangerate risk have driven a rise in the emerging currencyderivatives market, with turnover increasing by 40 percent inthe past three years, a BIS survey showed on Sunday.

The survey, an update on the triennial survey published bythe Bank for International Settlements in September, showedover-the-counter (OTC) trading turnover in emerging currencyderivatives had grown to $535 billion in 2013, compared with$380 billion in 2010.

OTC refers to trade in securities in settings other than acentralised exchange, such as via dealer networks.

According to the BIS, the figures are "consistent with theview that hedging demand and speculation by foreign portfolioinvestors - interested in mitigating the exchange rate risks oftheir local currency investments or speculating on currencymovements - has grown in importance".

Emerging currencies have weakened significantly this yearagainst the dollar, denting emerging stock and bond returns forforeign investors. The South African rand has fallen morethan 18 percent while the Indian, Turkish andBrazilian currencies are down 10-12 percent.

The BIS said derivatives trading growth had been strongacross the spectrum, with turnover in forwards, currency swapsand options rising faster than in developed markets. OTC tradein options, for instance, posted a 102 percent rise in the2010-2013 period.

In contrast, turnover in spot currency trading rose by just17 percent over the survey period.

Interest rate derivatives in emerging markets also grew inthe past three years, expanding by a third, the BIS said.Average daily turnover remains small, however, at $84 billion,or 4 percent of developed markets.

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