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,” O’Malia said.
“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.
Emerging market share
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.
Swap futures appeal
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 futures contracts.
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.