2Q24 CCP volumes and share in IRD
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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, Amir Khwaja and Chris Barnes, we take a quick dive into the headlines on the Clarus blog. 

Let's get started. 

Hi, Amir. Hi, Chris. 

Amir Khwaja: Hi, Ali. 

Chris Barnes: Hey, Ali. How are you doing? 

Ali Curi: I'm doing great. Welcome back to Quick Takes.

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

Amir Khwaja: Sure, Ali. It's called "Second Quarter 2024 CCP Volumes and Share in IRD." Once a quarter, I look at the volumes at CCPs, clearinghouses, in interest rate swaps and the major currencies, dollar, euro, sterling, et cetera.

And it's one of our most well read blogs. I think, the readers are breaking to understand what's happening both to volumes in a quarter compared to the prior year in different currencies and in market share by CCP. And invariably, we find the second quarter of this year was an interesting quarter.

So for example, so while dollars and euros were lower than record quarters in sterling, we had a record quarter in SONIA swaps at CCP. So with over, I think it was a figure, $21.6 trillion sterling traded in Q2 2024, which is compared to $12 1/2 trillion in second quarter '23. So you know, it's a huge increase in volumes, right?

Okay. So clearly, as rates have been in play in terms of when will they increase or, or decrease, I think there's been much higher volume in swap markets. So I think that was a [record] quarter. It's also a record quarter in yen, OIS TONA swaps, again, huge numbers. And I always find, quoting the yen numbers is obviously inspiring.

It's $1,558 trillion yen gross notional volume cleared in Q2 2024. That's a big number. A lot of zeros behind that one. So you know, it's up 300 percent compared to the prior year. All because TONA has obviously taken it from TIBOR, et cetera. So again, sterling yen, record quarters, huge volume going into clearing houses.

Also, I think, large volume in some of the EM currency. So EMEA, I cover Asia Pac swaps, LATAM swaps. So many of them were at or above the highest volume we've ever seen in a quarter, right? So if I look at LATAM swaps, 4. 8 trillion traded up 44 percent from the prior year. So I think, I guess we're at the cusp of rates mostly dropping in most economies.

So I think that's leading to a change in positioning in swap markets. We've seen significant volumes in most currencies. I think in terms of market share, it tends to be more stable. It doesn't change too much over time on quarter and quarter. So I think for market share, we look more on year type changes.

So I think that's been fairly stable, although I guess we can look in the detail and there'll be nuances. So there'll be some changes in market share between say an LCH or a GSCC or a CME or a Eurex, right? But by and large, that changes much more slowly than quarter on quarter. That's a quick view of the blog.

It has lots of charts from our CCP view product. Lots of different colors in terms of showing you nice trends by quarter for the past five quarters, how volumes are changing and how market share is changing across all markets. So really that's what I wanted to cover. So I'm going to ask Chris, if you have any questions.

Chris Barnes: Thanks, Amir. Yeah. So I'm stood here today, three days after historic sell off in Japan, a lot of volatility across all of the markets this week. I notice in your description, you mentioned that TONA saw record all time volumes. I seem to recall that, a lot of the commentary this week has been about the carry trade, about borrowing in yen and lending higher yielding currencies.

Would you say that we see any evidence in this data of a potential, loads of borrowing in yen and loads of lending in higher yielding LATAM swaps, for example? 

Amir Khwaja: It's hard to say that, yeah. It could be a reason for the higher volumes in yen swaps, right? And I think clearly, this data is from April to end of June.

I'm sure we'll see record days in both futures and swaps given the volatility in the last week or so. 

Chris Barnes: Yeah. Yeah. It makes sense. 

Amir Khwaja: For Q3 in most currencies. And I think certainly in dollars and certainly in yen. I think we'll see really high volume days. And it's quite interesting, if you look at peak days on a peak day, volume can be two X or three X and average their volume in swap markets.

Chris Barnes: Yeah, which will change your quarter as well, I imagine. So another clarification, I think, I see you've listed it at the top dollar swaps, euro swaps, sterling swaps, yen swaps, Aussie, CAD. Is that in order of size? Are dollar swaps bigger than euro swaps? 

Amir Khwaja: It used to be the order of size, but probably not anymore.

So probably that needs to be changed because I think that's not true anymore, right? Given dollar swaps is now SOFR in fed funds only and euro has EURIBOR and €STR, then euros should go above, right? 

Chris Barnes: I think so. 

Amir Khwaja: And I think, and maybe even Aussie goes above Vienna. I'm not sure, yeah. So I think that order does change quarter to quarter or can do.

I've just stuck with historically what have been the big markets important for us, right? And, overall across futures and swaps and just, fixed income dollars is a much bigger market than euros, right? So I've kept them. But in swap terms, given the basis trades, given your EURIBOR, €STR are different indices. That is higher. 

Chris Barnes: And when we look at these charts over the past five quarters, for example, euros, dollars, are we saying that Q1 of 2024 was like an all time record? So even bigger than 2020 spikes in '21 for sterling, the spikes in Q4 of '22 as well? 

Amir Khwaja: Yes. 

Chris Barnes: Wow. 

Amir Khwaja: At least, when you blog now, at least a Q1 in dollars was an all time high.

Higher than the COVID quarters and, those quarters, and that's probably true in euros as well. 

Chris Barnes: And so if we looked at the disclosures, we'd also expect to see all time highs for initial margin as well, because it's more risk, it's more volume. 

Amir Khwaja: Yes, yeah. 

Chris Barnes: Okay. And do we have any evidence that these record volumes directly feed into the revenues of these CCPs?

Is there like a direct comparison between what volumes have done at SwapClear and what LSEG are reporting for revenues? Is that a potential another avenue of analysis for this data? 

Amir Khwaja: Yeah, I would say so. Yeah. And it's probably a leading indicator. Given the statements come out a bit later.

So I think tracking volumes will give you, and market share, will give you an idea of trends and revenues. 

Chris Barnes: So even though market share can be quite stable, as long as the volumes are going up at each of the CCPs, it's likely that their revenue associated with those volumes is also going up.

Is that right? 

Amir Khwaja: Yeah. Yeah, definitely. Yeah. Because obviously, there's a revenue link to clearing fees for each trade that's cleared outstanding trades. Margin on balance is held. But clearly just the fact that you're clearing more volume, you're getting more clearing fees at the CCPs.

So I think without question because we can track volume daily, weekly, monthly, quarterly, we can get an idea of the effect on the clearing houses revenues going forward in their financial statements. 

Chris Barnes: And do we know on those volume drivers, whether it's different between dealers and clients, or is it pretty even across the board?

Amir Khwaja: Yeah, so I'm going to split, so because there's so many ways to slice and dice the data in TCP view at the moment looking at overall volumes, but I could isolate shaft looking at dealer volumes, separate client volumes and see what the trends were on each. And you would expect bigger changes on the client side when there's ratio.

Chris Barnes: Yeah. Although I seem to remember for Yen, we said that JSCC was generally more dealer volume. And given that they've seen this big spike in volumes for Yen, I do wonder if this is more of a "across the board" impact in both dealers and clients are seeing these big increases in volume. 

Amir Khwaja: Yeah, it could be.

Chris Barnes: Cool. Thanks, Amir. 

Amir Khwaja: Thanks, Chris. So back to you, Ali. 

Ali Curi: Great. Thank you, Amir. And please, share with us again the title of your blog post. 

Amir Khwaja: Sure. "Second Quarter 2024 CCP Volumes and Share in IRD."

Chris Barnes: What a catchy title, Amir. 

Ali Curi: Great, that works. Amir Khwaja, Chris Barnes, thank you both for sharing your Quick Takes. Let's do it again next week.

Amir Khwaja: Thanks, Ali. 

Chris Barnes: Thanks, Ali. Speak next week. 

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.