OTC derivative markets for the emerging Asian economies of China, India, Indonesia, Malaysia, South Korea and Taiwan are â€œsmall and highly localisedâ€ accounting for less than 10% of the total market, a study by Celent has found.
Celent found that although the six countries together accounted for 61% of the total Asian GDP, as well as 68% of international trade and 57% of equity trading in the region in 2012, they had less than 10% of total OTC derivatives turnover.
Celent said the small share of the total OTC market was â€œat oddsâ€ with economic indicators, such as economic growth and international trade, of Asia.
The report argued that the region's conservative regulations, limited investor awareness and product universe, and largely domestic-focused financial markets meant there was a low link between economic and financial development â€“ particularly in relation to OTC derivatives â€“ although this was beginning to change.
Arin Ray, analyst with Celentâ€™s Securities & Investments Group and author of the report, said:
â€œDevelopments in Asiaâ€™s emerging economies will contribute to the growth of OTC activity in the advanced countries, particularly in Hong Kong and Singapore. Presently, many corporates in these emerging economies trade at international exchanges or with international counterparties because of the lack of opportunities in their domestic markets.â€
Celent found the total OTC derivative trading volume of the countries was over US$29trn in 2012, with double-digit rate growth expected as trading volumes increase and market liberalisation continues.
While the six countries' OTC derivative markets are at a lower level of development, Celent said many had started to implement the G20's reforms and had developed, or were developing, their own central counterparties and trade repositories.
Celent said the excessive proliferation of CCPs was a concern since the small scale of their OTC markets might not justify their existence, with mergers a possible result. Celent also warned that onshore clearing â€œmay drive some foreign banks outâ€ of the markets, with a possible adverse impact on trading volume.
â€œHopefully the attempt of Asian regulators to sort these issues out through consultation with their Western counterparts will bear fruit, and they will ensure both growth and stability of the Asian OTC derivative markets,â€ the report noted.