Jim Sinclair’s Commentary

Like the 1950s science fiction movie, "The Blob," OTC derivatives, whatever the flavor of the day, continue to grow and grow.

Nothing has been cured and the potential for a second and more shocking economic event is real and in the present time.

Global Interest Rate Derivative Volume Near $450 Trillion End-June
Wednesday, August 04, 2010 8:51:57 AM (GMT-07:00)
By Min Zeng

NEW YORK (Dow Jones)–The total outstanding notional amount for all interest rate derivative transactions reported by the 14 major dealers including Goldman Sachs & Co, Morgan Stanley and J.P.Morgan was $449.202 trillion as of June 30.

The data were compiled by TriOptima, an infrastructure provider for the over-the-counter derivatives markets, which runs the global data warehouse for the derivatives markets. The global data collection is a key element of efforts to bring more transparency to the derivatives markets that were at the heart of the financial crisis. Detailed reports are submitted monthly to regulators; public reports contain the aggregated data.

Policy makers in major economies have pushed for derivatives to trade in exchanges and settle through central clearing houses. In the U.S., the Congress just passed the biggest financial regulatory overhaul since the Great Depression including tighter rules on derivatives.

TriOptima said that 74%, or $332.237 trillion, of the notional total was made up of interest rate swaps, which allow companies and banks to exchange fixed-rate interest payments for floating rate payments as a way to hedge their exposure to fluctuating rates or bet on the direction of interest rates. Other interest rate derivatives include currency swaps.

Other major dealers in rate derivatives markets are Barclays Capital, BNP Paribas, Bank of America-Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank AG, HSBC Group, The Royal Bank of Scotland Group, Societe Generale, UBS AG and Wells Fargo Bank.

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