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93 Fed. Res. Bull. A1 (2007)

handle is hein.journals/fedred93 and id is 1 raw text is: May 2007 U.S. Cross-Border Derivatives Data: A User's Guide Stephanie E. Curcuru, of the Board's Division of International Finance, prepared this article. Jonas J. Robison provided research assistance. The global derivatives market has grown rapidly in the past decade. By one measure of market size-the notional value, which is used to determine the pay- ments made on a derivatives contract the deriva- tives market expanded from $87 trillion in June 1998 to $454 trillion in June 2006 (figure 1). 1 Measured by the price at which a derivatives contract can be purchased in a current transaction, or the market value, the derivatives market grew from $3 trillion in June 1998 to $10 trillion as of June 2006. Available data suggest that cross-border deriva- tives deals-in which a resident of one country enters into a contract with a resident of another country- make up a substantial share of derivatives transac- tions.2 Recognizing this fact, the International Mon- etary Fund (IMF) has recommended that its member countries include cross-border derivatives in their reports on external-sector finances.3 Many countries with financial services firms active in the derivatives market have included derivatives in these reports since the mid-1990s. The United States, however, has to date published very little information on cross- 1. The notional value of a derivative is specified in the contract and serves as one basis for computing the payments made on the contract. For example, for a contract known as a foreign exchange forward, in which two parties agree to exchange an amount of currency at a future date, the notional value is the amount of currency to be exchanged. 2. For example, data for the United Kingdom indicate that cross- border derivatives with a positive market value to the domestic counterparty totaled $1.8 trillion in that country at the end of 2005. Refer to Office of National Statistics (2006), United Kingdom Balance of Payments: The Pink Book 2006 (New York: Palgrave Macmillan). Data for other countries are available in the Balance of Payments Statistics Yearbook, published annually by the International Monetary Fund. 3. In 1993 the IMF recommended including derivatives as a line item under the reporting category of portfolio investment; in 1998 it further recommended that member countries report such data as a separate reporting category financial derivatives. Refer to Interna- tional Monetary Fund (1993), IMF Balance of Payments Manual, 5th ed. (Washington: IMF); and International Monetary Fund (1998), Financial Derivatives, paper prepared for the Eleventh Meeting of the IMF Committee on Balance of Payments Statistics, held at the International Monetary Fund, Washington, Oct. 21 23, www.imf org/ external/bopage/agenda.htm. 1. Gross market value and notional value of global derivatives outstanding, 1998 2006 Triioons of U.S. doll 450 400 350 300 Gross market value I I I I 2 0 1998 2000 2002 Trillions of U S dollars 10 8 6 4 Notional value I 20 0 I 0 2004 2006 NOTE: The data are semiannual and extend through June 2006. Gross market value is the sum of the total gross positive market value of contracts with all counterparties and the absolute value of the total gross negative market value of contracts with nonreporting counterparties. The term gross indicates that for multiple contracts with the same counterparty, contracts with positive market values and contracts with negative market values are not netted. For an explanation of notional value, refer to text note 1. To adjust for double counting, the notional values of contracts with reporting counter- parties are divided by 2. SOURCE: Bank for International Settlements. border derivatives because of the limited availability of data.4 As a result, U.S. reports on cross-border financial flows and holdings currently exclude the bulk of transactions and positions in cross-border derivatives. To address these gaps in data and reporting, the U.S. Department of the Treasury, the Federal Reserve Bank of New York, and the Federal Reserve Board began collecting data on U.S. cross-border transac- tions and positions in derivatives in March 2005. They collect the data through the Treasury Interna- tional Capital (TIC) reporting system, which for many years has collected similar data for securities such as stocks and bonds.5 Because existing TIC 4. Some cross-border transactions in exchange-traded futures are included in the quarterly U.S. balance of payments data, table 8a, line B18 (Commercial liabilities; Advance receipts and other liabilities), available at www.bea.gov/intemational. 5. The TIC reporting system collects information on cross-border transactions in, and holdings of, portfolio securities and on other claims and liabilities, including deposits. Reports are filed by banks

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