Over-the-counter derivatives suffered less in the second half of 2008 than exchange-traded products, according to a report published by International Financial Services London.

The report said worldwide there had been a 13% fall in the notional value of OTC derivatives from $684tr in June 2008 to $592tr at year end.

The notional value of exchange-traded products fell 29% in the same period – despite the counterparty risk concerns of OTC contracts that came to the fore last year.

IFSL’s report, called Derivatives 2009, said exchange-traded turnover fell 46% in the 12 months to the first quarter of 2009. Duncan McKenzie, director of economics at IFSL, predicted year-on-year, the value of exchange turnover could drop by 25% in 2009.

The Bank of International Settlements compiled the figures. They show that the notional outstanding value of OTC contracts has fallen for the first time since the BIS started producing these statistics in 1998.

The notional value of credit default swaps fell 28% in the second half of 2008. This was partly due to voluntary termination of contracts.

McKenzie said that “over-the-counter derivatives may well have reached some degree of maturity but while exchange trading could eventually be lifted by proposed reforms, future growth of OTC derivatives will be more dependent on opening up of new markets including those in emerging economies.”

Interest rates are still the main asset class of OTC derivatives, accounting for 71% of global notional value.

IFSL is an independent organisation that promotes UK financial services worldwide. n