Bankers have expressed concern over serious liquidity problems in the major derivatives markets. The trading volume has slowed down for the vast over-the-counter markets in equity, credit and interest rate derivatives. Daniel Hawkins, equity derivatives strategist at Lehman Brothers, said: "There is a huge amount of uncertainty out there with extreme volatility. If you have made money this year, you could see your profits wiped out. On the other hand, if you have not had a good year, you have no money to play with. This has caused liquidity to dry up, and it could go on like this until the end of the year."

Suki Mann, credit strategist at Société Générale, added: "Liquidity has been very poor for a while, but last week it just got worse. There is so much hanging over the market - oil, the dollar level, the banking sector problems, subprime, the monolines, worries over recession in the US - it has deterred people from getting involved." According to the Bank for International Settlements, over-the-counter equity, credit and interest rate derivatives markets are worth $400,000bn, dwarfing the $60,000bn in the value of share trading on the world's 10 biggest stock exchanges.

 

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