Mandatory Clearing, Sep 9, a whimper not a bang?

The third (and final) phase of mandatory clearing under the Dodd-Frank Act began on Sep 9, 2013.

See the CFTC announcement.

So in the same vein as my article “Mandatory Clearing, June 10, Week One and YTD“, I wanted to look at what the data shows.

As usual lets start with some charts from SDRView (Researcher edition).

First Cleared USD Swap volumes for each of the past five weeks.

Cleared USD Swaps - Aug 12 to Sep 13

(Remember volumes shown above are understated because of Capped Notional rules).

Next Uncleared USD Swap volumes.

Uncleared USD Swaps Aug 12 to Sep 13

Well not much to see there.

Both Cleared and Uncleared Swaps are up for the week of Sep 9-13th.

Cleared representing 86% of the total volume and Uncleared 14%, similar percentages to prior weeks.

When we might have expected a drop in Uncleared and a commensurate increase in Cleared.

However we cannot ignore what happened in the Swap markets last week.

Verizon Raises $49 billion in Largest Corporate Bond Sale.

There must have been very large Swap trades, both by Verizon (a non-financial entity hedging commercial risk) and by Swap Dealers hedging their positions.

Both Uncleared and Cleared Swap volumes would have been much higher because of this.

So this could explain the data we are seeing.

Just for completeness sake, lets now look back further in history, so prior to the second June 10 clearing deadline.

A chart from May to Sep of Uncleared USD Swap volumes by week.

Uncleared USD Swaps May to Sep

This shows the marked drop in the week of June 10 and then weekly volumes remaining similar since then.

So can we say Sep 9th came and went with a whimper not a bang?

Or that “accounts managed by third-party investment managers, ERISA pension plans, and entities that were not subject to the Commission’s first two implementation deadlines” have either,

  • already been clearing prior to Sep 9th
  • or that their volume of trading is far less than those that are exempt (non-financial entities hedging commercial risk, an exemption for swaps between affiliated entities, and an exemption for certain swaps entered into by cooperatives)
  • particularly last week due to the Verizon Bond Issue.

So before we can confirm “whimper not a bang”.

We need to wait to see what the data shows next week.

As always, you can wait for my blog or better still check for yourself using SDR View.


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