Recent market turmoil has again highlighted the importance of a sound and well functioning financial market organization. Consequently, market transparency and effective risk management are key aspects of the current public debate to improve market integrity and efficiency. Given that background, Deutsche Börse and Eurex have published the White Paper "The Global Derivatives Market – An Introduction" with the aim to contribute an objective and fact-based foundation to the debate. The paper discusses the fundamentals and characteristics of the derivatives market as well as the imperatives for its well-functioning.
Among the key findings are some impressive figures: the derivatives market has grown strongly by around 24 percent p.a. over the last decade into a size of 457 trn EUR by notional amount outstanding today. Europe plays a leading role with 44 percent global market share. The market consists of two segments: over-the-counter trading accounts for 84 percent and on-exchange trading for 16 percent of the notional amount outstanding.
As a main conclusion, structural changes in the framework under which the derivatives market operates today in a global environment are not necessary. In contrast to other financial market segments, e.g. structured credit-linked securities, the derivatives market has proven resilient and reliable during recent market turmoil. The major economic function of efficient risk allocation is effectively fulfilled and especially the on-exchange segment strengthens financial market integrity with Central Counterparty clearing services that provide effective risk management.
The White Paper is primarily intended to provide the interested reader with a sound understanding of the subject matter.