Combining as it does real estate risk and derivative risk, the property derivatives market has not surprisingly had a tough time of late. In the first quarter of 2007 business was booming, with £2.9 billion of trades. But times have changed. Global volumes were £708 million for the second quarter this year – a modest rise from £606 million for the first quarter. A total of 159 trades were executed with an average outstanding size of £7 million.
The UK makes up the lion’s share of the market, accounting for £554 million of the total in the first quarter and £606 million in the second. In France, trading volumes increased, but the German market (for which there are difficulties with the index valuation) came to a standstill after just one trade in the first quarter of the year.
"The market has been very quiet," says Jon Masters, head of property derivatives at BGC Partners in London. "Activity in the first quarter of this year was the lowest it has been for two to three years." But he is optimistic that there are signs of a change in sentiment. "The pick-up has been very gradual and very tentative.
