Despite negative publicity and highly publicized losses attributed to the use of derivatives, the market continues to show healthy growth as more and more institutions use the financial instruments to hedge their risks.

In its semiannual report on global swaps activity, the International Swaps and Derivatives Association said the volume of new swaps written during the second half of 1993 rose nearly 12% to $2.9 trillion, up from $2.6 trillion a year earlier.

The notional principal of outstanding transactions at the end of the year stood at $8.4 trillion, the association said, up a whopping 58.5% from the $5.3 trillion posted at the end of 1992.

And experts estimate the market has grown nearly as fast this year.

The survey, conducted for the association by Arthur Andersen & Co., covers privately negotiated swaps transactions.

The data was provided by 66 association member firms in North America, Asia, Europe, and Australia.

Included in the survey are interest rate swaps, currency swaps, caps, floors, collars, and swaptions. Excluded are instruments with imbedded derivatives such as mortgage-backed securities and structured notes.

"The global expansion in swap activity continues to reflect the growing acceptance of privately negotiated derivatives contracts as an effective riskmanagement tool," said Jeffery R. Larsen, managing director of Chemical Banking Corp. and cochairman of the association's market survey.

The survey noted that in the second half of 1993, activity in interest rate swaps -- which accounted for 74% of all swaps activity last year -- rose 11.7% from the first half to $2.16 trillion. A year earlier, interest rate swaps accounted for 76% of the activity and amounted to $1.93 trillion.

The association said that on a year-to-year basis, interest rate swaps written in 1993 increased 45.4% from $2.82 trillion in 1992.

According to Paul B. Spraos, editor and publisher of the newsletter Swaps Monitor, there has been significant growth in interest rate swaps during the first half of this year.

"The outstanding volume of interest rate swaps is probably one-third higher as of June of this year," he said. "The interest rate swaps market globally in 1993 was about $8 trillion."

Mr. Spraos explained that the disparity in his and the associations figures stems from the fact that the association's survey covers only those members that chose to respond, not the entire market.

Activity in currency swaps declined during the second half of 1993, the survey found, falling 11.8% to $138.4 billion from $156.8 billion in 1992. Currency swaps accounted for about 5% of total activity in the derivatives market last year.

Partially offsetting a decline in activity in U.S. dollar-based currency swaps, there has been an increase in swaps of other currencies, especially the Hong Kong dollar -- which saw a 204.9% increase in the second half of 1993 -- and the Italian lira, which rose 23.2% last year.

"The continuing growth of the activity in nondollar currencies clearly reflects the broader need for and wider use of these transactions throughout the world," said association chairwoman and Bankers Trust International managing director Gay. H. Evans.

Indeed, Chemical's Mr. Larsen said activity is growing in swaps of nontraditional currencies.

"There have been huge increases in Thai bat swaps, for instance," he said. "But it's a huge increase in percentage of a small amount of volume."

He said that U.S. dollar-based swaps declined because they are expensive. "Cross-currency swaps use up more credit and capital than dollar-to-dollar swaps. People tend to not do them as much because of that."

The survey also found that activity in caps, floors, collars, and swaptions rose 19.1% last year to $607.3 billion, up from $509 billion. These instruments accounted for about 20% of total market activity last year, the association said.

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