The fracturing of the global interest rate swaps market that emerged in the aftermath of US swap execution facility (SEF) rules coming into force in October 2013 shows no signs of reversing. Although concerns over market fragmentation have been apparent for almost three years, some liquidity pools continue to be split on US and non-US lines.
This has been particularly noticeable in euro-denominated interest rate swaps (IRS). This report, the fifth in a series of research notes charting changes in global liquidity, finds that 91.2% of cleared euro IRS activity in the European interdealer market was transacted between European counterparties in December 2015. In September 2013, immediately prior to the introduction of the SEF rules, this figure stood at 70.7%.
The US dollar IRS market has experienced less change than its euro-denominated counterpart. The percentage of activity transacted between European and US dealers in the US interdealer market has decreased slightly, from 51.2% in September 2013 to 47.3% in December 2015.
Canadian and Asian cross-border flows represent a small portion of the euro- and US dollar-denominated swaps market. While both types of regional dealers prefer to transact euro IRS in the larger, exclusively European liquidity pool, Asian counterparties show a preference for trading US dollar IRS with European counterparties as well. Canadian dealers split their US dollar IRS volume between US and European dealers more evenly.
Documents (1) for Cross-Border Fragmentation of Global Interest Rate Derivatives: Second Half 2015 Update
Latest
Response on Commodity Derivatives Markets
On April 22, ISDA and FIA submitted a joint response to the European Commission’s (EC) consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and...
Episode 50: The Value of Derivatives
A new report from ISDA shows that companies all over the world use derivatives to alleviate uncertainty, transfer risk and enhance profitability. ISDA discusses the findings with Boston Consulting Group’s Roy Choudhury. Please view this page via Chrome to access...
ISDA/IIF Response to EC Market Risk Consultation
On February 22, ISDA and the Institute of International Finance (IIF) submitted a joint response to the European Commission’s (EC) consultation on the application of the market risk prudential framework. The associations believe the capital framework should be risk-appropriate and...
ISDA Submits Letter on Environmental Credits
On April 15, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) consultation on environmental credits and environmental credit obligations. The response supports the FASB’s overall proposals to establish clear and consistent accounting guidance for environmental credits, but...