Clarus Financial Technology

JSCC and CME RFR Adoption Indicators

A client recently asked us if we had ever calculated our RFR Adoption Indicators for individual CCPs. The answer was a surprising “No” so I thought I should rectify that in today’s blog.

This was somewhat motivated by this Risk.net story on JPY this week. The story highlights how different CCP market shares are at different maturities in JPY IRS. For example, CCPView shows that JSCC has a larger market share in 10Y and 30Y tenors:

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JPY TONA

JPY TONA trading has been extremely slow to take-off. The RFR Adoption Indicator in JPY was just 2.4% in March 2021.

Whilst there is only a relatively small amount of JPY TONA risk traded, there IS activity across the whole curve. For example, of the TONA risk that is traded, nearly 80% of it is in tenors longer than 2 years:

This chart looks only at TONA risk. There is no LIBOR or TIBOR risk on this chart. It is only the proportion of TONA risk that is traded in tenors longer than 2 years. Hope that is clear….it is resolutely NOT saying that up to 80% of all JPY risk longer than 2 years is executed as TONA. This should be evident if we consider that the overall RFR adoption indicator for JPY lies at just 2.4%.

JSCC RFR Adoption Indicator

With JSCC exclusively clearing JPY-denominated products, and clearing just over half of the market, what is the RFR Adoption Indicator for this CCP?

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On this first evidence it looks like the RFR Adoption Indicator for a specific currency at a specific CCP looks almost identical to the overall market – even when there exist a difference in maturity profiles at the two CCPs. That is not necessarily what I expected to see.

CME RFR Adoption Indicator

Having looked at JPY, let’s now look at USD. What does the RFR Adoption Indicator look like for swap (OTC) products at CME?

Readers should be aware that over 98% of risk across the six currencies (USD, EUR, JPY, GBP, AUD and CHF) traded at CME each month is USD denominated. Therefore, we would naturally expect the CME chart to look a lot like the USD SOFR RFR Adoption chart below:

Spot any differences?!

In Summary

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