A study of the Swedish derivative market

The fact that Sweden is a small, open economy is reflected in the derivative market, as the Swedish derivative market is closely interconnected with the foreign ones. This is clear in that many derivative contracts are denominated in foreign currencies and the counterparties are often localised abroad.

The Swedish derivative market also shares many properties with the larger derivative market for the EU countries. This includes the fact that both derivative markets are dominated by interest rate derivatives, that a large majority of the derivative contracts are traded bilaterally instead of on an exchange, and that a small number of participants are responsible for the majority of the outstanding derivative contracts.

Understanding how derivative contracts are used is important to better understand the risks they may bring into the financial system, not least because derivatives are often reported as off-balance-sheet items, in notes.

This study is based on comprehensive data on Swedish derivative contracts. To increase transparency on the derivative markets, starting a few years ago, all derivative contracts in the EU are reported to trade repositories. The Riksbank has access to these. This enables the Riksbank to obtain information on the entire Swedish derivative market in a way that was not previously possible. The report uses data from the repositories to illustrate different aspects of the Swedish derivative market. This is done by using different data breakdowns to illustrate different types of characteristics, such as which derivatives contracts are common and in which country the counterparties are located.

The Staff memo was written by Mats Levander, Carl-Johan Rosenvinge and Vanessa Sternbeck Fryxell, who all work in the Riksbank’s Financial Stability Department.