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Asia Tops North America as Biggest Derivatives Market for the First Time

The Asia-Pacific has overtaken North America as the world’s biggest derivatives market amid increasing demand for futures and options contracts in the region’s fast-growing economies.

Derivatives contracts traded in Asia-Pacific accounted for 38 percent of the global total in the six months to June, according to data from the Washington-based Futures Industry Association. That compares with 33 percent in North America, it said.

It is the first time Asia has surpassed North America in derivatives trading volumes since the group started tracking the data in the 1980s, Will Acworth, a spokesman for the association, said in an e-mailed statement. Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.

“This is the culmination of a long-term growth trend in countries like Korea and Taiwan and more recently China and India,” Acworth said. “At the same time, the steady growth that we have been seeing for many years in North America was interrupted by the credit crisis, which took some players out of the market and continues to depress trading activity.”

Derivatives contracts traded in the Asia-Pacific region climbed 52 percent to 4.2 billion contracts in the six months to June from a year earlier, while those that changed hands in North America increased 16 percent to 3.7 billion, the association’s data showed.

China, India

Korea accounted for 42 percent of derivatives traded across the Asia-Pacific region in the first half of 2010, while those changing hands in Indian exchanges accounted for 32 percent, the association said. China’s exchanges made up 16 percent.

The rapid growth in demand for commodity futures contracts in China and India should help the world’s biggest consumers of raw materials to eventually overtake Korea as the region’s top derivatives exchange, according to Geoff Howie, a senior vice president in Singapore at MF Global Holdings Ltd., a futures and options broker.

Contracts traded on the four Indian derivatives exchanges more than doubled to 1.36 billion in the first half of 2010, compared with 542.4 million a year earlier, according to the association’s data. In China, contracts that changed hands on three exchanges climbed 60 percent to 672 million in the same period, it said.

Demand Rising

“Investor demand for derivatives in Asia had been rising given the region’s rapid economic growth,” Julien Le Noble, chief executive officer of brokerage Newedge Group’s Japan unit, said in an interview in Singapore. “This is sustainable as Asian markets are maturing. There is a growing need from Asian corporate and financial institutions to have access to hedge their risks.”

Exchanges around Asia have been developing new products to capitalize on growing investor demand. China introduced a stock futures contract in April, while India Commodity Exchange Ltd. has announced plans to trade iron-ore futures.

Singapore Exchange Ltd., operator of the derivatives and securities exchange in the city, announced in July plans to introduce metals futures contracts based on London Metal Exchange prices and also stock futures linked to the Euro Stoxx 50 Index.

“This part of the world is growing much faster than the others,” said Magnus Bocker, chief executive officer of Singapore Exchange and former president Nasdaq OMX Group Inc. “Capital is needed in order for the region to continue to grow and develop countries in this part of the world.”

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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