Interest rate swap futures have yet to take off in Europe but they may grow to complement over-the-counter swaps
By Chris Hall
Swap futures were supposed to be the
'killer app’ that would enable futures exchanges
to capitalise on the increasing cost and regulatory burdens
piled onto the over-the-counter (OTC) swaps market by
post-crisis regulatory reforms. First the US then Europe saw a
wave of new instruments launched by exchanges looking to grab a
greater share of the rates market from banks. Progress has all
but stalled in the US and has not even got off the ground in
Europe, but exchanges and market participants remain optimistic
about their long-term viability.
According to data compiled by Clarus
Financial Technology, OTC interest rate swaps (IRS) still
account for more than 99.5% of volume on US$-denominated IRS
products. CME Group and its only US competitor in the swap
futures market, Eris Exchange, launched swap futures in late
2012, and volumes edged up in parallel with the roll-out of
mandatory central clearing and swap execution facilities (SEF)
under the Dodd-Frank Act. Open interest in CME US$ deliverable
swap futures peaked at 120-130,000 contracts in Q3-Q4 2014, but
ended Q4 2015 in a 60-70,000 range. Eris total open interest
stands at around 150,000 contracts.
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