SEF Trading Overview and Participation - CFTC TAC 20140603

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Presentation made to CFTC Technology Advisory Committee 3rd June 2014

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SEF Trading Overview and Participation - CFTC TAC 20140603

  1. 1. SEF Trading Overview and Participation CFTC Technology Advisory Committee June 3, 2014
  2. 2. Clarus is…  2 year old Technology Firm  100% Employee owned  Focus on developing products to serve Derivative Market participants in new world of CCPs, SDRs, Credit Hubs & SEFs. SERVICES RISK TECHNOLOGY DATA
  3. 3. DATA 101
  4. 4. Data: The basics What are we looking at Global Swap Market Swaps Reported to US Trade Registers (SDRs) Swaps Executed on US SEF's
  5. 5. Data: The basics Two sources of publically disseminated data:  SDRs (Part 43 “Alpha” trade reporting)  4 provisionally registered aka “live”  DTCC  ICE  CME  Bloomberg  SEFs  22 of 24 temporarily registered aka “live”  16 of 22 have registered activity aka “active”
  6. 6. Data: The basics Pros and Cons of the Public data SDR SEF Trade/Position Trade Level Position Level Frequency Intraday "Tape" + EOD End-Of-Day Formats Somewhat common Wildly different across SEFs Size Transparency Capped Notionals Full Notionals Venue Only On/Off SEF Dealer / Client Not Available Not Available (can guess) Dealer Pay/Rec Not Available Not Available Packages Not Available (without "tricks") Not Available
  7. 7. DATA – Credit Derivatives (Permitted + Required)
  8. 8. SEF Adoption 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Millions CDX.IG - Notional On-SEF Off % ON 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 CDX.IG - Trades On-SEF Off % ON
  9. 9. SEF Adoption 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 CDX SEF Adoption - Notional IG HY iTraxxEur 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 CDX SEF Adoption - Trades IG HY iTraxxEur
  10. 10. SEF Adoption So what’s the CDX that remains Off-SEF? 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Notional # Trades CDX IG - May 2014 On-SEF Block, Off-SEF Of Remainder, not 5-YR Of Remainder, not OTR/MROTR Of Remainder, not reported as "Clearing" Unexplained “Unexplained” might be packages, exemptions, reporting quirks. Impossible to tell from public data.
  11. 11. DATA – FX NDF (Permitted)
  12. 12. SEF Adoption 0% 10% 20% 30% 40% 50% 60% 70% Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 FX NDF SEF Adoption - Trades PEN COP CLP BRL ARS IDR TWD CNY PHP MYR INR KRW RUB MXN 0% 10% 20% 30% 40% 50% 60% 70% Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 FX NDF SEF Adoption - Notional PEN COP CLP BRL ARS IDR TWD CNY PHP MYR INR KRW RUB MXN  Less than 1% cleared
  13. 13. DATA – IRD Fixed/Float (Permitted + Required)
  14. 14. SEF Adoption 0% 10% 20% 30% 40% 50% 60% 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Millions USD Fixed/Float - Notional On-SEF Off % ON 0% 10% 20% 30% 40% 50% 60% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 USD Fixed/Float - Trades On-SEF Off % ON
  15. 15. SEF Adoption 0% 5% 10% 15% 20% 25% 30% 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Millions EUR Fixed/Float - Notional (USD Equiv) On-SEF Off % ON 0% 5% 10% 15% 20% 25% 0 1,000 2,000 3,000 4,000 5,000 6,000 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 EUR Fixed/Float - Trades On-SEF Off % ON
  16. 16. SEF Adoption 0% 5% 10% 15% 20% 25% 0 50,000 100,000 150,000 200,000 250,000 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Millions GBP Fixed/Float - Notional (USD Equiv) On-SEF Off % ON 0% 5% 10% 15% 20% 25% 30% 0 500 1,000 1,500 2,000 2,500 3,000 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 GBP Fixed/Float - Trades On-SEF Off % ON
  17. 17. SEF Adoption 0% 10% 20% 30% 40% 50% 60% 0 20,000 40,000 60,000 80,000 100,000 120,000 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Millions JPY Fixed/Float - Notional (USD Equiv) On-SEF Off % ON 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 JPY Fixed/Float - Trades On-SEF Off % ON
  18. 18. SEF Adoption 0% 10% 20% 30% 40% 50% 60% Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Fixed/Float Swap SEF Adoption - Notional USD EUR JPY GBP 0% 10% 20% 30% 40% 50% 60% Oct-13 21,768 Nov-13 22,430 Dec-13 24,297 Jan-14 26,451 Feb-14 21,038 Mar-14 29,993 Apr-14 23,894 May-14 24,289 Fixed/Float Swap SEF Adoption - Trades USD EUR JPY GBP
  19. 19. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Notional # Trades USD Fixed/Float IR Swaps - May 2014 On-SEF Un-Cleared Non-MAT Index Non-MAT Tenor Non-MAT Start (Fwds) Block Unexplained SEF Adoption So what’s the IRD that remains Off-SEF?
  20. 20. SEF Adoption But it depends how you peel the onion. Most of the Non-MAT characteristics are found on Fwd Starting (& Non- IMM) Swaps 0% 20% 40% 60% 80% 100% Notion al # Trade s USD Fixed/Float IR Swaps - May 2014 On-SEF Un-Cleared Non-MAT Index Non-MAT Tenor Non-MAT Start (Fwds) Block Unexplained 0% 20% 40% 60% 80% 100% Notion al # Trades USD Fixed/Float IR Swaps - May 2014 On-SEF Non-MAT Start (Fwds) Un-Cleared Non-MAT Tenor Non-MAT Index Block Unexplained
  21. 21. Buy Side Participation
  22. 22. Characteristic of Off-SEF Trade Oct-2013 May-2014 Change Non-MAT Start (Fwds) 54.4% 72.8% 18.4% Non-MAT Tenor 26.4% 30.7% 4.4% Un-Cleared 22.3% 25.7% 3.4% Block 10.6% 12.3% 1.7% Non-MAT Day Count 0.7% 0.8% 0.0% Non-MAT Index 12.3% 10.0% -2.2% ** A single trade can have multiple of these characteristics Buyside Participation Anecdote #1:  Firms are avoiding SEF’s by trading more Forward Starting (or other “close-but-not-quite-MAT”) swaps Is this backed up by Off-SEF trade data? Quick answer supports an increase, however:  Some uptick in % occurs from the decrease in Off-SEF trades.  We cannot look at only D2C behavior in public SDR data. 73% of Off-SEF Trades were Fwd-Start 31% of Off-SEF Trades were not a MAT-able Tenor
  23. 23. Buyside Participation Anecdote #2:  Only 10% of the Dealer-to-Client market was trading On-SEF as recently as January What overall trends can we see in the SEF data?
  24. 24. Buyside Participation  General uptrend in “Client” SEFs  March/April inflated due to index rolls 0 100 200 300 400 500 600 700 2013 Oct 2013 Nov 2013 Dec 2014 Jan 2014 Feb 2014 Mar 2014 Apr 2014 May Billions SEF Activity - CRD Index - USD Equivalents BBG ICE MarketAxess TW BGC DW GFI ICAP TP Tradition 0 100 200 300 400 500 600 700 2013 Oct 2013 Nov 2013 Dec 2014 Jan 2014 Feb 2014 Mar 2014 Apr 2014 May Billions SEF Activity - CRD Index - USD Equivalents Legacy "Client" SEF Legacy "Dealer" SEF
  25. 25. Buyside Participation  General uptrend in “Client” SEFs 0 500 1000 1500 2000 2013 Oct 2013 Nov 2013 Dec 2014 Jan 2014 Feb 2014 Mar 2014 Apr 2014 May Billions SEF Activity - Vanilla IR Swap - USD Equivalents BBG Javelin TW TrueEX (SEF) BGC DW GFI ICAP IGDL TP Tradition 0 200 400 600 800 1000 1200 1400 1600 1800 2013 Oct 2013 Nov 2013 Dec 2014 Jan 2014 Feb 2014 Mar 2014 Apr 2014 May Billions SEF Activity - Vanilla IR Swap - USD Equivalents Legacy "Client" SEF Legacy "Dealer" SEF
  26. 26. Summary Public SDR & SEF data shows:  Good adoption across the board for CDX  FX NDF shows some currency pairs with high On-SEF rates  Interest Rate Derivatives data indicates:  Slow uptrend in On-SEF vs Off-SEF  Vast majority of Off-SEF trades are Fwd Start  Fwd Start swaps are and have been commonplace in the bespoke IR Swap market

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