Pace of derivatives trading slows amid financial turmoil - IPD

The total volume of IPD Property Derivatives traded in the third quarter of 2008 fell 38% on the previous quarter, to £1.15 bn (EUR 1.8 bn). A total of 166 trades were executed during the three-month period to 30 September, the lowest number of trades since the third quarter of 2007, according to data released by Investment Property Databank (IPD).

The full report on trading volumes was launched at Monday's IPD Quarterly Briefing/IPF Property Derivatives Interest Group breakfast meeting at Central Hall Westminster.

In the UK, the total notional value of deals completed over the quarter stood at £1.03 (EUR 1.28 bn). IPD said this amounts to £6.1 bn (EUR 7.6 bn) over the year to date, comparing favourably to the same three quarters last year when £5.6 bn (EUR 6.98 bn) was record.

'Over the third quarter, trade volumes dropped by almost identical levels against the previous quarter and the same period last year at 37% and 38%, respectively,' IPD said.

Similarly the nascent French and German derivatives markets both traded ower volumes compared to the previous quarter as well as against the same period last year. French trading volumes were the lowest since trading began in the first quarter of 2007, down by more than half, at 55%, compared to the second quarter of 2008, and 34% lower than the same period last year.

The total outstanding notional of trades fell marginally over the third quarter, by 4%, despite the overall trading activity owing to several trades expiring. 'It remains to be seen whether the IPD French Bi-Annual Indicator, which launched on 13 October and measures total returns for property market, will stimulate trading over the final quarter of the year,' IPD said in a statement.

In Germany, trade volumes fell 28% on the previous quarter and by half compared to the third quarter of 2007. Over the period, the total notional value of deals completed for France and Germany were £71 mln (EUR 88.4 mln) and £55 mln (EUR 68 mln), respectively. The total amount traded on the IPD suite of indices now stands at £19.9 bn (EUR 24.8 bn) with the outstanding notional amount at £11.8 bn (EUR 14.69 bn).

Ian Cullen, co-founding director of IPD, said: 'Given the financial crisis besetting investment banks at present, it is encouraging that the level of derivative activity which depends on their participation has held up as well as it has. In such uncertain times derivatives should still offer real risk management opportunities'.