Clarus Financial Technology

Scandie Swaps

Cleared Volumes

We’ve never taken a look at Scandie swaps (Skandi? I’m sticking with Scandie for this blog). We did briefly take a look at NOK and SEK spreads last month following the Nasdaq default – but more as a thought experiment than any particularly interesting volumes.

Let’s start with CCPView. This shows global cleared volumes in Interest Rate Swaps:

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Currency Split

With volumes increasing in IRS but virtually no trading in OIS, what is the currency split amongst the three currencies?

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September 2018 saw record volumes in both SEK ($289bn equivalent) and NOK ($87bn equivalent) but DKK was well short of a record month (back in April 2018).

Perspective

It is worth putting these volumes in perspective – let’s compare to what else trades across CCPs. We are not expecting Scandie swaps to trouble USD (or EUR) swaps for the largest currency award, but how do they compare to some other currencies?

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US Persons trading Scandie Swaps

As well as looking at the global market from a high-level perspective, we can look at the US market at a trade-by-trade level thanks to SDRView. Calibrating our data, it is worth noting the percentage of the global Scandie market made up by America:

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SEF Trading of Scandie Swaps

There is very little volume of Scandie swaps being transacted on-SEF:

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European Data

As we’ve seen, SDR data offers a window into 20% of the Scandie market. To see more trade-by-trade detail for the remaining 80% of the market, we turn our attention to European data provided through MIFID II transparency. We can see the following volumes from the Bloomberg APA and MTF, shedding light on a further $3bn per month of the market.

Outside of this, we have to wait for other APAs to enact the changes directed by ESMA. Yes, we are still waiting, six months after the guidance was published….

RFRs in Scandinavia

Having performed this rudimentary research into the Scandie markets, I am struck by a seeming lack of plans to shift away from ‘IBOR indices and towards OIS. This is in stark contrast to other major currencies, where Risk Free Rates are trading more and more.

It is notable that almost no OIS trades in Scandinavia. Why is that? Is unsecured interbank lending still alive and well and occurring in decent volumes at longer tenors in Scandinavia? The banks certainly have a reputation for being well capitalised.

It is worth reading about NIBOR and STIBOR as they appear to have very strict codes. Will this prevent these markets embracing OIS trading, even as other currencies see liquidity move?

What could a cross-currency swap look like in the future?

NIBOR vs SOFR? STIBOR vs SONIA?

It seems odd to trade longer dated, credit-related indices in one currency vs an overnight rate in the other. How would you roll the funding in FX markets for that structure? Three-month plus a three-month OIS in the major currency? One to ponder as market reform gathers pace.

In Summary

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