Investor interest in the interest rate derivatives market ought to be dictated by their exposure to the cash market. While investors’ cash market exposure is substantial and has been increasing over time, the accounting hedge through HTM classification insulates the holders against market risk. Therefore, we observe skewed and limited participation, resulting in shallow markets.
Though the Interest Rate Swaps (IRS) was launched in 1999, the only product where the market volumes have grown substantially is the overnight index swap based on the overnight money market index. Here too the participation is not significantly broad-based.