Issues of measurement related to market size and macroprudential risks in derivatives markets (Brockmeijer Report)

February 1995

In 1993, the Euro-currency Standing Committee of the central banks of the Group of Ten (G-10) countries asked a Working Group to identify the principal macroeconomic and macroprudential information requirements of central banks in relation to global derivatives market activity. In the light of shortcomings in the existing data available to central banks, the Working Group was asked to develop measurement concepts and monitoring techniques that would address those needs and which would lend themselves to consistent international implementation. The Working Group, which was chaired by Jan Brockmeijer of the Netherlands Bank, delivered its report to G-10 Governors in September 1994.

The present report summarises the principal findings and recommendations of the Working Group. It is being released as a basis for discussion with market participants on the development of a framework for improved regular monitoring of the scale and structure of global derivatives markets activity. One of the Working Group's recommendations - to conduct a survey of derivatives markets activity in conjunction with the triennial Central Bank Survey of Foreign Exchange Market Activity - was endorsed by the G-10 Governors in May 1994 and is being implemented following consultations with market participants. The Survey, in which market participants in 26 countries will be participating, will be carried out in the month of April 1995. The questionnaire that was drawn up by the Working Group for the Survey is attached as Annex II to this report.

In addition to broad periodic surveys of global market activity, the Working Group reconnnended that central banks, in consultation with market participants and supervisory authorities, should initiate the regular compilation of market activity statistics based on data from the principal participants in derivatives markets. These statistics should, through their regular dissemination, make an important contribution to improving transparency in derivatives markets, and should provide a basis for ongoing monitoring of the implications of derivatives market activity for areas of central bank policy responsibility. The present report invites the reaction of market participants to the Working Group's recommendations regarding regular market reporting. It is envisaged that a framework for the regular compilation of market activity statistics will be drawn up in the light of the results of the Spring 1995 Survey.

This report has benefited from an earlier study, "Recent Developments in Interbank Relations" (the "Promisel" report), published by the BIS in 1992. It is part of a broader undertaking by G-10 central banks to assess the implications of derivatives markets for central banks' policy responsibilities and for financial market functioning more generally. Two related reports have recently been published by the BIS: "A Discussion Paper on Public Disclosure of Market and Credit Risks by Financial Intermediaries" (the "Fisher" Report), September 1994, and "Macroeconomic and Monetary Policy Issues Raised by the Growth of Derivatives Markets" (the "Hannoun" report), November 1994.