Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in Canada during April 2013

During the month of April, the Bank of Canada and 52 other central banks and monetary authorities conducted a survey of turnover activity in the foreign exchange and over-the-counter (OTC) derivatives markets in their respective countries. This worldwide effort was coordinated by the Bank for International Settlements (BIS) and is undertaken every three years.

The purpose of the survey is to obtain global, comprehensive, and consistent information on the size and structure of the foreign exchange and OTC derivatives markets. The data are collected to increase market transparency and to help central banks, market participants, and others better understand and monitor patterns of activity in global financial markets.

The Bank of Canada is releasing the summary results of its survey today, as are many other participating central banks. As well, the BIS is issuing a press release that summarizes highlights of the aggregated global turnover. 1 Canada has participated in this survey since 1983, and summary results of earlier surveys are shown in Tables 1 through 4 and 7.

Almost all financial institutions in Canada that are active in the wholesale foreign exchange and derivatives markets were surveyed. They consisted of 15 financial institutions, estimated to represent approximately 98 per cent of these markets in Canada. 2 With respect to foreign exchange, the survey covered spot transactions, outright forwards, foreign exchange swaps, currency swaps, 3 and OTC options. The interest rate products covered were forward-rate agreements, interest rate swaps, and OTC options. Participants were also asked to identify transactions by currency and type of counterparty, and, in the case of foreign exchange, they were asked to identify the execution method for each transaction.

The turnover part of the triennial survey is conducted on the basis of residence or location. In particular, the basis for reporting is the country in which the sales desk of a trade is located. 4 Where no sales desk is involved in a deal, the trading desk is used to determine the location. Although there was variation in their individual qualitative assessments, on average, reporting dealers in Canada indicated that turnover activity during the month of April was normal and that activity was increasing compared to the previous six months.

Highlights of the 2013 survey

• During the month of April, total turnover of foreign exchange transactions rose from US$1.3 trillion in 2010 to over US$1.4 trillion in 2013, an increase of 9.8 per cent.  However, with one more business day in April 2013 than in 2010, average daily turnover increased by 4.7 per cent from US$61.9 billion in 2010 to US$64.8 billion in 2013 (Table 1).
• There was considerable variation in turnover growth by product. On an average daily basis from April 2010 to April 2013 spot transactions fell 18 per cent to US$15.0 billion in April 2013. In contrast, outright forwards and options increased 60 per cent and 37 per cent respectively to US$10.1 billion and US$3.1 billion. Foreign exchange swaps were up 5 per cent to US$35.6 billion, and currency swaps were largely unchanged at US$1.2 billion.
• Single-currency interest rate derivatives turnover in April 2013 totaled US$747.4 billion, down 14.6 per cent from the US$875.5 billion recorded in 2010 (Table 2). Average daily turnover fell by 18.5 per cent from US$41.7 billion to US$34.0 billion. On an average daily basis, forward rate agreements grew by 4 per cent to US$6.8 billion, interest rate swaps fell by 27 per cent to US$25.2 billion and interest rate options more than tripled in volume to US$2.0 billion (from a much smaller base that had fallen considerably three years ago).
• The composition of foreign exchange business by type of instrument or product over the past 11 surveys is shown in Table 3. The proportion of spot transactions fell to 23 per cent from 29 percent whereas the proportion of outright forwards rose to 16 per cent from 10 per cent. In contrast, the proportion of foreign exchange swaps and currency swaps remained unchanged at 55 per cent and 2 per cent respectively.  Foreign exchange options rose slightly to 5 per cent.
• Table 3 also provides data on the composition of foreign exchange business by type of counterparty. This table shows that the proportion of business going through reporting dealers rose to 63 per cent from 54 per cent, a level more typical of most of the earlier surveys.  The proportion of financial customer 5 business fell to 26 percent from 38 per cent (see next bullet for more detail), and non-financial customers, which are mainly end-users such as corporations and government entities, rose to 12 per cent from 8 per cent.
• For the first time, reporting dealers were asked to provide a detailed breakdown of the other financial institutions counterparty category.  The sub-category breakdown is provided in Table 3a and as can be seen, most of the volumes are attributed to non-reporting banks (42 per cent) and institutional investors (42 per cent), with lesser amounts to hedge funds and proprietary trading firms (13 per cent) and official sector financial institutions (3 per cent).
• Table 4 shows the distribution by currency of foreign exchange market activity in Canada. Of the transactions, 92.5 per cent have the U.S. dollar on one side and 61.2 per cent had the Canadian dollar on one side. The other most significant currencies in foreign exchange transactions in Canada in 2013 were the euro (17.3 per cent), the U.K. pound sterling (7.9 per cent), the Japanese yen (6.2 per cent), the Australian dollar (3.7 per cent), and the Mexican peso (3.1 per cent).
• Tables 5 and 6 provide more detailed information on the turnover in foreign exchange and interest rate derivatives respectively in Canada. In Table 5, it can be seen that total foreign exchange turnover in Canadian-dollar against U.S.-dollar transactions declined by 8.4 per cent, whereas other currency business against the U.S. dollar increased by 42.5 per cent. The Canadian dollar against currencies other than the U.S. dollar, and all other currency pairs, represent a relatively small percentage of total transactions (8.0 per cent). Non-deliverable forwards (NDFs) totaled US$28.2 billion during the month of April. By volume, approximately one-third of all foreign exchange transactions are undertaken with local (located inside Canada) counterparties and two-thirds with cross border (located outside Canada) counterparties.
• Almost half of all interest rate derivatives in Canada (Table 6) are denominated in Canadian dollars, with more than one-third in U.S. dollars and the remainder in other currencies. Canadian-dollar and other currency interest rate derivatives declined in volume (by 36.6 percent and 24.8 per cent respectively) whereas U.S.-dollar derivatives increased by 70.1 per cent. By volume, approximately one-fifth of all interest rate derivatives are with local counterparties and four-fifths are with cross border counterparties.
• In a complementary question in the April survey, reporting dealers were asked how much of their reported turnover was centrally cleared through central counterparties (CCPs) after execution. The proportion for forward rate agreements and interest rate swaps was 60 per cent and 53 per cent respectively.
• Table 7 provides a maturity breakdown for outright forwards and foreign exchange swaps.  More than 98 per cent of these transactions are less than one year in duration, with over 59 per cent being less than 7 days.
• This survey included a re-formatted execution methods table for foreign exchange contracts with a more detailed counterparty breakdown for each product (Table 8). Forty-four percent of all foreign exchange transactions were undertaken by way of voice direct 6 (over the telephone), with the highest percentages attributed to non-financial customers and other financial institutions. Twelve per cent of transactions were intermediated through voice brokers (voice indirect).  Forty-five per cent of all foreign exchange transactions were executed electronically, mostly through Reuters Matching/EBS (18 per cent) and single-bank proprietary trading systems (13 per cent), but also through other electronic communications networks or multi-bank dealing systems (7 per cent) and “other” direct electronic means such as Reuters Conversational Dealing (7 per cent).

Note:  Additional tables on the results of the Canadian survey, including detailed tables on amounts outstanding, will be made available on the FX Volumes and Rates of the Canadian Foreign Exchange Committee’s (CFEC’s) website later this year.  These will be published after the release of the final comprehensive BIS 2013 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity report expected before the end of the year. The CFEC’s website will contain a direct link to that report once it is available.