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Exchange-Traded Swaps Volume Surged 11 Percent in 2011

The increase may have been caused by rampant volatility, a potential driver of demand for instruments that are often used as a hedge, according to Mexican Derivatives Exchange CEO Jorge Alegria.

The number of derivatives contracts traded on exchanges climbed 11 percent last year in the wake of often extreme volatility in the global marketplace, according to data compiled by the World Federation of Exchanges.

The WFE said more than 24 billion derivatives contracts were traded on exchanges across the world last year, up from 22 billion a year earlier. The WFE, which conducts an annual survey of the derivatives market, said 11.9 billion futures contracts and 12.9 billion options contracts were traded a year ago.

Meanwhile the number of traded derivatives contracts doubled in 2011 from where it was five years earlier, the WFE added, noting that volatility likely played a role in the surge.

"This increase in volumes seems logical given the high volatility of markets in 2011, which may have driven the need for hedging upwards," said Jorge Alegria, the chief executive of the Mexican Derivatives Exchange. "The relative preference for derivatives built on underlying indices or ETFs, as compared to single stocks, could also factor into the increase."

WFE's data added that the number of equity derivatives traded in 2011 climbed 14 percent, growth that was fueled by index and ETF derivatives. Meanwhile interest rate derivatives volume soared 9 percent, overcoming low interest rates, virtually no economic growth and credit expansion, and often difficult environments, WFE said.

The number of currency derivatives traded on exchanges soared 16 percent as well, WFE reported, growth that was driven mainly by a surge in the number of currency options dealt on the National Stock Exchange of India since October 2010.

As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio

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