What is now Mandatory to trade On SEF?
First a quick re-cap:
- Interest Rate Swaps in USD that are spot starting for 2Y, 3Y, 5Y, 7Y, 10Y, 12Y, 15Y, 20Y, 30Y.
- Interest Rate Swaps in EUR that are spot starting for 2Y, 3Y, 5Y, 7Y, 10Y, 15Y, 20Y, 30Y.
- Interest Rate Swaps in USD that are IMM starting, first 2 dates and the same tenors as USD IRS.
Fur the full details see CFTC Made Available to Trade
So all other tenors and types are not mandatory and so may be traded Off Facility.
EUR Interest Swaps trading on Feb 17
Given that Feb 17, 2014 is a US Holiday (Presidents Day), there was no trading in USD IRS.
However we can look at EUR IRS, starting with a chart.
What stands out here is the large €2.6 billion of 2Y, all of which is Off SEF.
Lets drill-down on this tenor and do some analysis.
From which we observe the following:
- There are 11 trades reported for 2Y
- On SEF are two trades with gross notional €2 million
- Off SEF are nine trades with gross notional > €2.5 billion
- Seven of these trades are not Par trades ( so not subject to MAT)
- As evidenced by the fact that the ICAP mid-market price at 18:00 LON was 0.444
- And these are at prices away from that (e.g. 0.55 or 0.85)
- And some have additional fees to signify this
- Which leaves only two trades (€250m & €300m) that are OFF SEF and we do not know why.
- It may be that they qualify for the Package exemption until May 15 (see CFTC)
- Or that they have been erroneously traded Off SEF
- Your guess is as good as mine.
Given the above, lets exclude the seven Off SEF and Non-Par Swap trades from our chart and change the axis to show trade counts:
From which we observe:
- The Broken (Brk) dates tenor, represents all tenors that are not regular.
- This has 15 trades Off facility, which is as we would expect as these do not trade On SEF and neither are they required to.
- 18M is not a MAT tenor, but there is one On SEF trade
- 2Y we have discussed before
- 4Y is not a MAT tenor and has 2 Off SEF trades
- 9Y is not a MAT Tenor and has 2 On SEF and 4 Off SEF trades
- Remaining tenors are all MAT
- And have a majority of On SEF trades
- But still quite a few Off SEF ones
- Rather than drill-down into this, lets compare with a prior day.
Compare with EUR IRS on Jan 20, 2014
For an appropriate comparison, I have gone back to the most recent US Holiday, Jan 20th (Martin Luther King Day) and show the same chart.
Visually we can see that Off SEF trade counts are similar if not more than On SEF.
In-fact for many tenors the Off SEF count is higher.
Something that is not true for 17 Feb.
We can definitely say that comparing Jan 20 and Feb 17, there is a large increase in the portion of On SEF EUR IRS trades.
USD Interest Rate Swaps
I set out to do this blog at 10:00m London, but various interruptions and meetings mean that it is now 2:14 pm London, so New York is trading. Which means I might as well look at current snapshot of USD IRS activity on 18 Feb, 2014 as of 9:15 AM (EST).
What a sight for sore eyes, all that blue as far as the eye can see.
Out of 47 trades reported so far, only 3 are Off SEF.
While we should really wait till 4pm EST, I think it is fair to say that “SEF MAT is truly operational”.
Swaps market infrastructure change is taking place as we watch, here and now.
I intend to provide an update tomorrow on Day 2 of SEF MAT.
For those of you to impatient to wait, I invite you to try SDRView and see for yourself.