Quick Takes: CNY swaps — what’s new?
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Ali Curi: Hi everyone, and welcome to ION Markets Quick Takes. I'm Ali Curi, and every week along with my guests, Chris Barnes and Mark Bell, we take a quick dive into the headlines on the Claris blog. Let's get started.

Hi, Chris. Hi, Mark. 

Chris Barnes: Hey Ali. How are you doing? 

Mark Bell: Hey, Ali.

Ali Curi: Hello, gentlemen. Welcome back to Quick Takes.

Chris, let's start with you. What's your Quick Take for this week? Which headline from the Clarus FT blog would you like to discuss? 

Chris Barnes: Alright. Today I'm gonna start with a blog that I wrote a really misleading first bullet point on. I'm gonna try and clarify some stuff. The blog is called "CNY Swaps — What’s New?"

This is all about the Chinese swaps market, both onshore and offshore. I have to say, it's really, really difficult treading a fine line between, like click bait is never really relevant for our niche, right? But it's a fine line between working out what is like a valid headline and a valid fact and what is just like squeezing the facts to make something interesting that's not, and this I found really, really interesting in that if you ignore the six large swap markets, the "six large ones" in our speak.

The majors are dollars, obviously, Euros is bigger than dollars now. Sterling, huge. Yen getting bigger and bigger recently. And then Aussie and CAD are like the really mature markets. If you ignore those, five years ago when I looked at it, I had some kind of expected currencies, which have traded for decades, like Swedish and Swiss, as like the seventh and eighth largest, and Kiwi was up there as well.

Next on the list was CNY Chinese Renminbi swaps, and so I haven't really kept in touch with kind of where that swaps market has evolved over the past five years. When I ran the data this time, it was super exciting. It's suddenly the seventh largest swaps market. So the bullet point I led with is that it's now the largest market in the world outside of G6, which I think is a terrible way of framing that. But I do think that it is a really valid thing to pull out. The purpose for the blog was somewhat twofold. I went looking in the data for a specific fact. I found data that backed up that fact. And so I stated it on the blog.

That's another long-winded way of saying I'm not sure the fact and the data were quite as correlated as I make out on the blog. So I'm kind of really like airing the dirty laundry of Clarus in the process of writing a blog here. Because we do have to write something at least once a week. We do have deadline pressures. And so sometimes when you write something and you read it back, you're like, "Did I really want to say that?" 

One of the things that really jumps out on this blog in terms of our data is that clearing has really increased Chinese swaps. We're already in a competitive environment in the onshore swaps trade at Shanghai clearing offshore swaps, which are net settled in dollars. They clear at LCH swap clear. There's already a bifurcation there, but when you look at the SDR data and CCP data volumes have gone up and clearing has gone up. When we look at the proportion of trades that are cleared in the SDR data, it's gone up from something like 60% to 90%.

That is a really significant change. And so I obviously went looking for something to see what would back that up. And lo and behold, China have announced their plans to implement the uncleared margin rules. So those will be coming starting as early as 2026. And so when I read it and I saw that ISDA SIMM was mentioned, my head immediately went to Rates World because we've blogged on the impact of inflation swaps and increased clearing in those as a result of uncleared margin rules. I think really what this blog should have done, and what a future blog may do, is actually look at the impact on FX markets.

I think when you're looking at Chinese markets, generally, I'm sure that we will find that NDFs are far more significant than rates. Therefore, any upcoming changes in uncleared margin rules could be conceived as a mandate to clear those NDFs. That could be a really significant story and something that I should have looked into the data with.

Whereas what I'd actually done is written a rates blog and then went, "Oh, there is a nice story that compliments this." And I do think it's important for our credibility and for our readers to hear a little bit about the process that goes into writing these blogs and sometimes why you aloud read something and then like two months later you will go over and it's go, "Well, it kind of fits, but it kind of seems to be missing the main story as well." One of the main stories I think that we don't miss here is that SEF trading has started for CNY. Similar story as we've seen in currencies, as diverse as Mex and Sterling, that SEF volume is really dominated by Tradeweb. So that's a real significant trend that we see over and over and over again for multiple currencies, and I think really, really speaks to the electronification of our markets and how people are choosing these platforms for a workflow benefit really. I can't believe that liquidity is necessarily better, but I do think there are clear benefits to have from an STP perspective. Mark, that was a quick rundown of the blog. Any, specific questions or gotchas that you saw? 

Mark Bell: So I think this may be a gotcha, but the one interesting dynamic that's taken place in the last, or change in the Chinese market that's taken place in the last five years, is the introduction of OTC Clear's Swap Connect function, which allows you to have a trade cleared at both OTC Clear the Hong Kong exchange's, OTC clearing business, and at Shanghai Clearing at the same time with margin offsets, I believe, between the two clearing houses. Is this also something that could have helped push those volumes and push the change to clearing? 

Chris Barnes: It's a great question, and it's quite an intricate question as well.

Like, what is the relationship between onshore and offshore implied by basis markets, and then what is the explicit relationship with this clearing Connect. I haven't looked into the data in enough detail to see whether those volumes are actually published daily. Whether the transparency that we would need to really promote it, let's say, onto the blog and write a lengthy piece.

I don't know if the data is there yet. If it is, I think it provides a really interesting, like third leg basically, to onshore, offshore and link. And whether those link volumes are gonna be complimentary to onshore and offshore, or whether they just take offshore volumes out of swap clear into another venue.

And that would be a really interesting thing to write about if the data's there. I just don't know. 

Mark Bell: I think that's probably something that would be a good podcast with someone from OTC Clear explaining to us exactly what the mechanism is and how they expect it to be reported. Another just quick question, but in terms of onshore swaps, when we looked at the Indian market, you were able to identify onshore swaps that had been reported to the US SDRs. Did you see any onshore swaps being reported to the US SDRs this time as well? 

Chris Barnes: Can we rename these questions to, "Things that Chris should have done?" That is a brilliant question.

I can't believe it never even entered my head, but yes, in theory for subscribers of SDRView, we could go through all of the CNY swaps, look for settlement currency of dollars, and if it's blank, assume that the settlement currency is CNY. It's a settlement currency of dollars, therefore it's offshore. CNY is onshore. My gut feeling though, is looking at the data, looking at the increase in clearing, I think probably we only capture the offshore market, but that is a hunch alone. It would be a great exercise to repeat what we did for INR. 

Mark Bell: I think that's yes, an interesting thing to get a result on. Thanks for that.

Chris Barnes: No worries. All right, Mark, let's table the questions until next week and Ali, I'll hand back over to you. 

Ali Curi: Thank you, Chris, and please share with us again the title of your blog post. 

Chris Barnes: That is part of my "What's New" series, "CNY swaps — what's new?" 

Ali Curi: That works. Chris Barnes, Mark Bell. Thank you both for sharing your Quick Takes. Let's do it again next week. 

Chris Barnes: Thanks, Ali. Look forward to it. 

Mark Bell: Thanks, Ali. 

Ali Curi: And that's our episode for today. You can read more about these topics on the Clarus blog and you can follow ION Markets on X and on LinkedIn. 

Thank you for joining us.