G-10 Proposals for Improving Global Derivatives Market Statistics

1. The central banks of the Group of Ten (G-10) countries are making public today a Report entitled Proposals for Improving Global Derivatives Market Statistics. The Report outlines a framework for the regular collection of derivatives market data from a small number of leading global dealers. The framework will be completed later this year following a period of consultation with market participants and supervisory authorities ending 30th September. The framework is expected to be implemented at end-1997. The Report was prepared by a working group of the Euro-currency Standing Committee which was chaired by Mr. Shinichi Yoshikuni, an Adviser at the International Department of the Bank of Japan.

2. The implications of the growth of derivatives markets for the functioning of financial markets have been the subject of considerable discussion in recent years. A broad consensus has developed that derivatives markets serve a valuable role in strengthening the financial system by facilitating the reallocation of risk to market participants most able and willing to bear it. At the same time, it has become clear that improved information on the size and structure of derivatives markets is needed to increase market transparency and thereby help central banks, other authorities and market participants better monitor patterns of activity in the global financial system.

3. The proposed framework, which has been developed in consultation with market participants and industry associations, envisages the regular compilation of internationally consistent market statistics on the notional amounts and gross market values outstanding of broad categories of foreign exchange, interest rate, and equity-based derivative instruments across a range of underlying currencies, interest rates and equity markets. The statistics would also include derivatives-related credit exposures before and after netting arrangements. The statistics would be based on consolidated reports provided by leading global dealers to their national central banks or securities regulators. The global market statistics will be compiled and published by the BIS, initially on a semi-annual basis.

4. The framework is based on the "Framework for Supervisory Information about the Derivatives Activities of Banks and Securities Firms", released jointly by the G-10 Basle Committee on Banking Supervision and the Technical Committee of the International Organisation of Securities Commissions in May 1995. It extends the supervisory framework in ways that are necessary for data reported by individual firms to be suitable for consistent aggregation and for the statistics to shed light on derivatives activity within market risk categories.

5. In its concluding section, the Report offers a preliminary discussion of approaches to the measurement of aggregate market risk that combine information on exposures arising from both cash and derivatives activities. The intention is to set out central banks' interest in these questions and to suggest avenues for further research.

6. The Report follows an earlier G-10 study, "Issues Relating to the Measurement of Market Size and Macroprudential Risks in Derivatives Markets" (the Brockmeijer Report), published in February 1995, which reviewed central banks' information needs in relation to derivatives market activity, and the release by the BIS in May 1996 of the final results of a comprehensive survey of derivatives markets activity carried out by central banks and monetary authorities in 26 countries in April 1995. The Report reviews some of the principal findings of that survey, and recommends that central bank experts examine whether it is desirable to conduct another global survey of derivatives markets in conjunction with the next triennial Central Bank Survey of Foreign Exchange Market Activity, which is planned for April 1998.

Basle, 18th July 1996