Swaps trading on the US’ swap execution
facilities (SEFs) has registered stable volumes in the inaugural week of
trading, while data shows market operators Bloomberg and ICAP have emerged as
early market share leaders.
The week until
Wednesday 9 October showed around 6,500 swaps were traded on SEFs with 52%
executed electronically – on an order book or request-for-quote model – with
the rest brokered via phone or constituting block trades, according to data
compiled by the Commodity Futures Trading Commission (CFTC).
So far, credit
default swaps traded on SEFs have reached around US$26 billion and interest
rate swaps US$426 billion.
Speaking on Thursday at a conference hosted
by buy-side trade body the Investment Company Institute, CFTC commissioner
Scott O’Malia said he was encouraged by early SEF activity, but lamented
difficulty in amassing trade data.
“We’re seen a relatively stable daily
volume, which started off at about 1,200 trades, which slowed down over the week,
but has come back and on 7 and 8 [October] it started to ramp up,”
“We don’t receive all the data at the Commission,”
he said. “I had to go to the National Futures Association, which gets around
91% of the SEF data, and to the Depository Trust and Clearing Corporation.”
So far, the CFTC has registered 18 SEFs,
with five more pending approval, which the Commission has delayed due to the US
government shutdown that cut CFTC staff from 650 to 28.
Data for the first three days of SEF
trading compiled by Tod Skarecky, senior vice president, Americas for OTC
derivatives technology provider Clarus Financial Technology, showed Bloomberg
had attracted significant market share.
For these three days, Bloomberg reached 84%
market share in FX derivatives with US$10.2 billion in value traded, and 71%
market share in credit rate derivatives, with US$16.5 billion in value traded.
For interest rate swaps, a SEF operated by
inter-dealer broker (IDB) ICAP attracted 70% market share with US$41.6 billion
in value traded.
Speaking to theTRADEnews.com, Skarecky said
he was doubtful early market share figures would hold, although suggested IDBs
would continue to attract strong volume.
“I would expect things to shake up
considerably in the coming months and I think the number of SEFs will halve
within a year,” he said.
“Some SEFs aren’t fully operational yet,
and operationally there is a lot of paperwork involved in on-boarding clients.”
“What jumps out is
that Bloomberg seems to have the most volumes,” Skarecky commented alongside
the data, published in a company blog.
“The big IDBs have a
good showing. GFI is a solid second in credit, which does not surprise me given
their position in the classic IDB CDS world. Likewise ICAP having 70% of
the interest rate derivatives volume makes perfect sense,” he wrote.
Despite optimism about SEF trading, the
CFTC’s O’Malia said he was apprehensive about how liquidity would break down
across regions – specifically between the US and Europe – given the global
nature of the OTC derivatives market.
“I have some real concerns about
international liquidity fracture,” he said, adding market participants had
already flagged a shift in swaps liquidity from Europe and the US due to SEFs.
“We’ve compelled US persons to trade on multilateral
trading facilities by 2 October and we’ve heard from Europeans that was
unexpected,” he said.
The appeal of swap futures may also rise in
the short term as firms weigh the benefits of adapting to SEFs. Figures from
futures venue Eris Exchange showed a continued growth in the number of swap
Figures for end Q3 showed a 200% increase
in open interest from Q4 2012 to 63,000 contracts, which also marked 111%
growth throughout Q3.