The impact Dodd-Frank has had on the US Swaps market trading ecosystem is undeniable. The old standards of traditional over the counter (OTC) derivative trading have been thrown to the wind and trading on Swaps Execution Facilities (SEFs) has been ongoing for more than two years now.
TABB Group believes we have reached a new stage in the US OTC derivative market regulatory overhaul as regulators are ready to address the shortcomings in;what has been mandated. However, outstanding issues around pre- and post-trade still need to be resolved as the market moves toward an increasingly electronic landscape and though adoption of trading on SEFs has somewhat plateaued, the market is still far from reaching a new status quo.
In “US Swaps 2016: Setting the New Standard,” TABB Group examines publicly available trade data to break down recent developments in the US Interest Rate Swap and Index Credit Default Swaps market, recent SEF market share and volume trends within the US swaps trading landscape.
Report author Colby Jenkins (pictured) explains that market participants have put their collective feet on the gas pedal recently with regard to SEF trading. The first quarter of 2016 saw an aggregate of over USD10.7 trillion (ex-FRA) in notional traded on SEF platforms for interest rate derivatives. Q1 2016 was a similarly record-breaking quarter for index credit default swaps, with an aggregate total of USD1.89 trillion traded on SEF venues.
“TABB Group has been tracking SEF activity since trading kicked off in October 2013 and volumes have ebbed and flowed over the past few years as more execution mandates have come into effect and buy-side participants are forced to on-board with SEF platforms. Only recently have figures consistently reflected a market finding its balance,” says Jenkins. “Despite this face-value progress, post-trade transparency on SEFs is still a highly debated issue among regulators and the technological challenges around package transactions on SEF venues has been a persistent issue that remains to be resolved.”