- We combine BIS and Clarus data sources to provide a holistic view of IRS markets.
- Almost all of D2D volumes are now cleared, with little variability across the major currencies.
- Clearing in Dealer-to-Client IRS markets is highly currency dependent.
- Clearing in D2C markets varies from 27% (CHF IRS) up to 67% (USD IRS).
2016 – It was all about Clearing
LCH have recently announced their 2016 volumes were up by 25%. Of course, our users didn’t have to wait for that press release, as CCPView provides daily figures throughout the year:
- LCH cleared volumes by currency for 2015 and 2016.
- There was a 25% increase in volume cleared. The volumes increased from $266trn to nearly $333trn. Remember that this is on a single-counted basis.
- On a per-currency basis, by far the largest increase seen was in USD. 2016 cleared volumes were $48.4trn higher than in 2015!
- The largest decrease in cleared volumes was in EUR swaps. 2016 cleared volumes were $382bn lower than in 2015. This is in USD equivalent terms.
- DKK, NOK and PLN all saw small decreases.
- AUD swaps saw an increase in volumes of $9.6trn – which I think is mainly due to the introduction of AONIA swaps (AUD OIS).
- CAD (+$2trn) and JPY (+$5trn) also saw sizable increases in cleared volumes at LCH during 2016.
What Percentage of the Market is now Cleared?
With this impressive growth at the major clearing house, it makes sense to take stock of what percentage of our markets are currently cleared. We have looked at this question previously in a couple of blogs, particularly when we asked What is the Size of the Uncleared IRS Markets? That blog was particularly informed by an in-depth look at BIS Derivatives Statistics – which is useful background reading when you come across quotes such as the below from the linked Reuters article:
According to the Bank for International Settlements, over 60% of OTC derivatives notional reported by dealers was cleared through central counterparties as of June 2016, and three-quarters of all interest rate swaps.
In their most recent quarterly review, the BIS recently published an excellent article looking at how much of the markets are now cleared – it is well worth reading to get a good handle on the numbers.
We aim to add to that analysis by being more specific, and answering two questions:
- How much of the Dealer-to-Dealer (D2D) IRS market is cleared?
- How much of the Dealer-to-Client (D2C) IRS market is cleared?
As we explained in our previous blog, our data-sets are well positioned to answer these questions on a currency-by-currency basis.
How Much of the D2D IRS market is Cleared?
We take the BIS Semi-Annual Survey of Notionals Outstanding as at end of June 2016. To avoid double-counting of cleared notional amounts (complying with our data principles), we remove all volumes facing Central Counterparties. Instead, we use the Clarus CCPView data to give us an accurate single-counted view of Cleared IRS markets. We then take the BIS figures for Uncleared markets, giving us a single-counted view of the Uncleared IRS markets. This is a little different to how ISDA adjust the BIS figures in their periodic reviews.
Finally, because the BIS provide this data by Counterparty type, it allows us to identify Uncleared trades between Reporting Dealers.
- Notional Outstanding of Cleared and Uncleared trades by currency for the Dealer-to-Dealer IRS market.
- 80% of USD Dealer-to-Dealer trades were cleared as at end of June 2016.
- Surprisingly, this is the lowest percentage for all of the major currencies.
- 89% of CAD IRS were cleared, 87% of CHF and 82% for EUR.
- BIS include volumes for “Other” currencies. The penetration of Clearing among this group is much lower, at only 65%.
- Overall, 81% of D2D notional was cleared.
How Much of the D2C IRS market is Cleared?
We have therefore established that most of the D2D market is cleared. It is also fairly consistent across the major currencies.
When we look at the same data for D2C markets, the variability is far greater on a currency-by-currency basis:
- Notional Outstanding of Cleared and Uncleared trades by currency for the Dealer-to-Client IRS market.
- 67% of USD Dealer-to-Clint trades were cleared as at end of June 2016.
- This is by far the highest percentage for all of the major currencies.
- Just 58% of CAD IRS were cleared in D2C space, 27% of CHF and 36% for EUR.
- BIS include volumes for “Other” currencies. The penetration of Clearing among this group is somewhere in the middle, at 43%.
- Overall, 51% of D2C notional was cleared.
- Combining the BIS data with our Clarus data provides a powerful resource.
- It enables us to calculate the take-up of clearing across multiple asset classes. This week we looked at IRS , and we looked at NDFs last month.
- We can analyse Clearing by counterparty type, allowing us to calculate what percentage of both Dealer-to-Dealer and Dealer-to-Customer markets are cleared.
- For IRS trades outstanding as at June 2016, we find that 81% of D2D trades were cleared.
- For D2C markets, the uptake of IRS clearing varies considerably between currencies.
- Overall, 51% of D2C notional is cleared.