Derivatives Trading Patterns Shift as Trading Volumes Double in 2014

According to a yearly review paper by the International Swaps and Derivatives Association (ISDA), trends in the interest rate derivatives markets have been shifting throughout 2014. The organization highlights in its study that derivatives users are trading interest rate derivatives (IRD) more frequently but in smaller sizes.

The study named “ISDA SwapsInfo 2014 Year in Review” points to a 17.6% decline in the average daily notional volume of IRDs traded from the first to the fourth quarter of 2014. The total ADV totaled $484.4 billion in the fourth quarter. Throughout the same period average daily trade counts increased from 3,622 to 3,800.

The results of the study reveal a decline in the average size per trade from $162.3 million in the first quarter to $127.5 million in the final three months of the year.

The trend has been broad-based with all transactions being affected - off-venue trading and swap Execution facility (SEF) trading have both performed similarly.

 That said, when compared to a year ago, ADV more than doubled from $237.6 billion in 2013 to $519.4 billion last year.

The number of trades increased by 44.6% from an average of 2,447 trades per day in 2013 to 3,539 in 2014. 

The share of cleared trades over the period remained on a growth path, now accounting for 76.5% of average daily IRD notional volumes in 2014, compared to 71.7% in 2013.

SEF trading has also increased as it now accounts for 52.4% of the average daily notional volume (ADV) against 19% in 2013.

The CEO of ISDA, Scott O’Malia, who previously served as a U.S. CFTC commissioner, said, “Our research shows the impact of regulatory reforms on derivatives trading volumes. More than three quarters of interest rate derivatives average daily notional is now cleared. The number of trades conducted each day increased over the course of 2014, while trade sizes decreased.”

The study analyzes IRD and CDS data collected from the ISDA SwapsInfo site, aggregating information from users data from the Depository Trust & Clearing Corporation (DTCC) and Bloomberg US swap data repositories. Additional information about volumes is gathered from individual swap execution facility (SEF) websites.

The full ISDA SwapsInfo 2014 Year in Review study can be found below.

SwapsInfo 2014 Year in Review, March 16 2015