The recent news that ESMA to recognize three UK CCPs from 1 January 2022, has been well covered in the press e.g. see Reuters. The equivalence decision for a time limited period of 18 months, from 1 January 2021 to 30 June 2022, applies to ICE Clear Limited, LCH Limited and LME Clear Limited.
And from the ESMA announcement, there is this:
Until that ESMA review is complete, we don’t know if any of the UK CCPs will be found to be “of such substantial systemic importance that this CCP should not be recognized to provide certain clearing services or activities.”
The other fact we do not yet know is how market participantes are reacting to this. Of-course there is conjecture, rumour and gossip, but here at Clarus we deal in data and facts.
So today I will look at EUR Swaps market share, focusing on Eurex Clearing, not because I expect to see a change from the announcement; it is too early for that, but to set the scene for the next 21 months.
EUR IRS Market Share
In CCPView, we collect daily volumes from CCPS, so let’s use that to look just at EUR IRS gross notional volume share by month for 2020 YTD.
Showing a small but discernable increase in Eurex’s market share in recent months, starting with 4.7% in January, a peak of 6.3% in July, 4.2% in August, 6.2% in September (excluding the last 3 days of the month) and a YTD average share of 4.6%.
Switching to a by week view, starting from March 30, 2020:
We see two weeks where Eurex EUR IRS volume share was greater than 9%, the week of 8-12 June and the week of 14-18 September, while generally it’s share is around 4.5%, +/-1%.
[UPDATE: Drilling down further we see that 9 June and 15 September have spikes in EUR IRS volume greater than 4 times the average daily volume and no commensurate increase in open interest. This would suggest that this large volume is due to new trades resulting from multi-lateral compression runs, which are excluded from LCH SwapClear and CME (OTC) volumes. Consequently we should adjust down the Eurex volume on this day resulting in a lower share for the week and month; this is something we plan to do in future, once we can isolate the specific volume due to compression runs.]
EUR OIS Market Share
Next let’s look at OIS Swaps, EONIA and ESTR.
Showing Eurex with 1.5% market share YTD, with recent months at 1.8%, but no real discernable increase over the year.
EUR FRA Market Share
As the vast majority of FRA volume is an automated portfolio maintenance process and not price forming trades, I am not going to spend time showing charts for these. Suffice to say that market share for 2020 YTD in EUR FRAs is LCH SwapClear with 73% and Eurex Clearing with 27%.
Other Ways to Slice the Data
I could look at the data in other ways, for instance using a daily gross notional time series or risk adjusted volume using the tenor bucketed data we have in CCPView or by Outstanding notional instead of volume.
No doubt some of these may throw up additional insights, but that is one for another day or for those of you with CCPView access, feel free to try yourself.
So we have set the scene.
UK CCPs have equivalence till 30 Jun 2022.
In EUR IRS, LCH has 95.3% market share YTD 2020.
While Eurex has 4.6% YTD and 6.2% in September.
It will be interesting to see how the data develops.
Day to day, week to week, month to month.
And what will the end state be for Eurex’s share?
Similar to USD IRS, where CME has around 10% share?
Or similar to JPY IRS, where JSCC has around 50% share?
Or in between, higher or lower?
Your guess is probably as good as mine.