Derivatives markets The second quarter of 2008 saw a retreat in activity on the international derivatives exchanges. Total turnover based on notional amounts decreased from the high of $692 trillion recorded in the first quarter to $600 trillion. Most of the contraction was due to derivatives on short-term interest rates, which had contributed most to the record turnover in the first quarter. Turnover also declined in derivatives on long-term interest rates and stock indices. By contrast, turnover in derivatives on foreign exchange gained modestly. Turnover in derivatives on commodities, measured only in terms of the numbers of contracts, dropped, although year-on-year growth remained quite high. Turnover in derivatives on short-term interest rates contracted to $473 trillion in the second quarter of 2008 from the previous quarter’s $548 trillion. The most significant fall was in the US dollar segment, which had surged in the previous quarter, but turnover in the euro, sterling and Australian dollar segments also declined. In particular, turnover in futures and options on three-month eurodollar rates retreated markedly. This coincided with a further deterioration in liquidity conditions in term money markets over the quarter, as evidenced by widening spreads of US dollar Libor over the overnight index swap rate. However, turnover in futures and options on federal funds rates rose, almost reaching the record high of the fourth quarter of 2007.