Usage of OTC derivatives to manage risk and hedging is increasing according to new figures released by derivatives benchmark SuperDerivatives (SD).

SD claimed the report is the first of its kind from an independent multi asset derivatives market data source to cover overall OTC derivatives activity and said it will be released on a quarterly basis.

Figures cover both vanilla and complex derivatives across interest rates, foreign exchange, credit, commodities and equity derivatives and are sourced from SD's system.

The SD figures follow a report from the Bank for International Settlements (BIS) into usage of OTC derivatives trading figures which revealed that the notional amount of OTC derivatives trades outstanding bounced back to reach USD 605 trillion by the end of June.

Dr David Gershon, chief executive of SD, said:: "Our analysis reveals continued growth in the use of FX, interest rates, energy and commodity derivatives because they retain a crucial role supporting real, physical markets, in terms of hedging currency risk, managing resources and enabling cross border trade.

"Overall, the OTC derivatives market continues to perform effectively in helping companies and investors to manage their risks in a time of higher than usual rates of default, and the credit events that have occurred thus far are being settled in an orderly fashion.

"I am convinced that the direction financial markets took in the 2000s, excluding credit derivatives, will in time return and derivatives will continue to evolve and volumes will soar as they offer a customisable and practical way to manage risk."

SuperDerivatives analysis of OTC derivatives usage by asset class found the following for interest rate and foreign exchange derivatives:

Interest rate derivatives
There is still a drive in the market to trade vanilla structures as opposed to highly exotic structures where there has been a relative slowdown. The percentage of exotic interest rate trades priced is consistent at around 15% - 20% of overall priced instruments throughout 2009, as opposed to the 30% - 40% for the last few months of 2008 Callable fixed rate and range accrual structures continue to be the most heavily priced exotics which is in line with activity in the market

Foreign exchange
A drive in the market to trade simple FX structures as opposed to highly exotic structures
FX exotic structures such as target redemption notes (TARN), basket options and partial barrier options - knock in and knock out - are still used heavily. Basket options enable cheaper hedging (for those with a multi-currency exposure), or those looking to invest in a multi-underlying structure, as opposed to a series of vanilla options