2 Jan 2011

Measuring Financial Transactions

I've been trying hard to get some hard numbers for the amount of trading going on - it's hard work. I've been using two serious databases that provide detailed numbers. One is the Bank for International Settlements (BIS), the other is the World Federation of Exchanges (WFE).  I used the BIS dataset for generating the numbers in my paper on taxing Financial Transactions where I concluded that  total transactions for just 13 countries in the BIS database in 2008 were at least 9000 trillion dollars.  I've recently provided some compilations of the derivatives trading volumes using WFE data. 

The problem I face is that I suspect that the $9000 trillion value I used could be  massively underestimating the real numbers because neither BIS nor WFE attempts to provide a complete picture.  For example, theres a table in the BIS report on what is described as "Trades executed on selected exchanges and trading systems" (see table TRS3). At least they don't pretend to be providing anything other than "selected" data. Here's the list of the exchanges used in the database together with the value of transactions (billions of USD) up until the beginning of 2009:
One of the first things you  notice is just how many Exchange systems have "nav" - not available - next to them. They include the Shanghai and Shenzhen Stock Exchanges, Borsa Italiana, all three systems in Japan, the Saudi Tadawul, both Swedish exchanges, both the UK systems (London Stock Exchange and Virt-x) and the American Stock Exchange. What levels of trading are hidden here??

Now, let's look at the list of Exchanges covered by the WFE - the ones that provide data for the derivatives trading statistics (see my post on the 30th of December). Here they are:

So, how many of these are in the BIS database too? Well, unless I'm wrong, there are only a handful. These may include BM&FBOVESPA, Eurex, some of ICE, the Korea Exchange, MexDer, the Montréal Exchange, maybe the NASDAQ OMX Nordic Exchange, maybe NYSE Amex, perhaps the Tokyo Stock Exchange Group, and the Turkish Derivatives Exchange. But note that even some centres that are supposed to be in both don't provide the figures for both databases - Tokyo Stock Exchange Group for example.

What does this all mean? Well, I suspect that it means that if we really want to know the real numbers, we can basically add together the 1500-2000 trillion USD in the WFE to the thousands of trillions in the BIS database. And who is to say that there aren't a whole pile of other places where trading goes on which aren't visible in either WFE or BIS?

Conclusion: It is absolutely vital that someone does the compiling of all the data for all trading world wide. We simply cannot go on with a situation where the Markets can decide whether or not they want to provide the data or not. I find it amazing that a totally inexperienced amateur like me is doing all this number crunching here at home. The financial markets need to provide all this data - now. Of course, they will be happy just to provide partial information, but they shouldn't be allowed to get away with it.

P.S. If someone knows of any other place where hard numbers can be found, please let us know...

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