Volume data for interest rate swaps (IRS) transactions cleared through central counterparties (CCPs) has shown US market participants are successfully adapting to the new clearing mandate.
A report from consultancy Aite Group measuring the volume of cleared IRS and credit default swap (CDS) trades through LCH.Clearnet-owned SwapClear, CME Group and IntercontinentalExchange (ICE) has shown significant growth as the market adapted to Dodd-Frank Act clearing rules.
Cleared IRS, which constitutes the majority of OTC derivatives trades, showed particular growth, while clearing volumes in CDS trades experienced more gradual growth.
The CME’s US clearing volume jumped 221% from US$1.4 trillion notional outstanding in January to US$4.5 trillion for May.
SwapClear’s US operations, which began at the start of the year, had increased to US$2 billion of IRS in May. Meanwhile, the CCP’s global operations saw volume almost double, from US$7.6 trillion in January to US$14.5 trillion in May.
ICE Clear Credit, however, achieved mild first-half volume growth, with January and May registering around US$1.6 trillion in cleared OTC derivatives, due in large part to less robust volumes of CDS trades compared to IRS.
Dodd-Frank’s category one deadline for OTC derivatives clearing, which applied to major swap participants trading of IRS and credit default index instruments occurred on 11 March, while the category two deadline – which covered most buy-side firms – occurred on 9 June.
“The response to the various US clearing deadlines has been fairly measured as firms prepare clearing operations ahead of the deadlines,” said report co-author and senior analyst for Aite, Virginie O’Shea.
“This suggests the market has been successful in adjusting to the clearing mandate so far,” she said, adding that relevant deadlines related to major swap participants and category one firms, many of which were already prepared to support CCP clearing for OTC derivatives.
The report, titled ‘OTC Derivatives Clearing 101: Making Things Clear’, will be released in September. O’Shea and co-author and research associate, Will Woodward, normalised cleared IRS trade data from the three CCPs and analysed global data from the International Derivatives and Swaps Association (ISDA).
The global data from ISDA showed a doubling of global cleared swaps despite actual trading volumes plateauing in recent years, O’Shea said.
“The figures we analysed showed global trading volumes in OTC derivatives instruments trending down between 2011 and 2012, but the volume of trades passing through central clearing has increased for the IRS market as Dodd-Frank deadlines hit the US market,” she said.