USD MAC Swaps: How Large Is the Market?

| FinReg

By Amir Khwaja, Clarus

Originally published on Clarus Financial Technology blog

In my recent blog, USD MAC Swaps: A Closer Look, I noted that once the September roll into the December contract was complete, the cumulative volume of this would provide an interesting in-sight into how large the USD MAC Swap market really is. In this article, I will look to establish this.

Charts of Trade Counts

Assuming that firms start rolling up to 10 days prior to the September 17, 2014 date, lets start by using SDRView Res to look at weekly volumes for the 3 week period leading up to this date.

First 1-5 Sep:

Which shows that:

  • 205 MAC trades out of 4,025 On SEF USD Swaps, so 5%
  • 185 MAC trades were Off SEF, out of 2,447 USD Swaps
  • Of which 24 were Cleared and 161 Uncleared

Then 8-12 Sep:

Which shows that:

  • 482 MAC trades out of 4,654 On SEF USD Swaps, so 10%
  • 1,578 MAC trades were Off SEF, out of 5,946 USD Swaps
  • Of which 1,494 where UnCleared!
  • (Drill-down on these shows a large number of small notional trades, $1m, $2m, $3m, $4m, …)
  • The 482 On SEF MAC Trades are > $48 billion gross notional out of > $379 billion for On SEF USD Swaps

Then 15-19 Sep:

Which shows that:

  • 237 MAC trades out of 4,626 On SEF USD Swaps, so 5%
  • These represent $15b gross notional out of $338 billion
  • 99 MAC trades were Off SEF, out of 3,574 USD Swaps

Given the above we can see that the week of Sep 8-12 has much higher volume and is when most of the Sep to Dec rolls must have taken place.

How Much Volume Rolled?

To establish this we need to turn to SEFView, where we know that Tradeweb and Bloomberg are the two SEFs that report MAC volume.

Lets start with Tradeweb, export the drill-down data and process in Excel to isolate MAC Swaps.

Which shows that in the week of 8-12 Sep:

  • $162.8 billion gross notional was reported by Tradeweb
  • Of which $76 billion was MAC Swaps
  • Sep 2014 delivery trades were $37.4 billion
  • Dec 2014 delivery trades were $37.7 billion

Over the 3 week period a cumulative $47 billion of the Sep delivery month were traded and presumably all or at least the vast majority of this volume rolled into the Dec delivery month, where we see $50 billion of gross notional. Assuming that the MAC market is similar to IMM Swaps or Futures, in both of which the bulk of the outstanding volume is in the first delivery month, we would say that the outstanding notional of USD MAC Swaps is at least $50 billion.

Lets now look at the BSEF numbers.

Which shows that in the week of 8-12 Sep:

  • $120.9 billion gross notional was reported by BSEF
  • Of which $29 billion was MAC Swaps
  • Sep 2014 delivery trades were $11.3 billion
  • Dec 2014 delivery trades were $17.6 billion

Over the 3 week period a cumulative $11 billion of the Sep delivery was traded and $31 billion of December.

What does this say about total outstanding MAC volume?

Well we could add $11b to $47b and say that Sep delivery shows $58 billion was traded. Or we could use the Dec delivery figures of $31b and $50b to come up with $81 billion.

Lets go with the $80 billion estimate.

Does not sound huge, but would be interesting to compare this with IMM Swaps.

For me that is work for another day, but if you are interested please do for yourself using SDRView Res or SEFView.

It would also be interesting to compare with Swap Futures, both ERIS and CME.

That is also work for another day, unless someone reading this has the information and would like to share. (Please send to me and i will update the article or add a comment).

Other Points of Interest

Tradeweb reports MAC Swaps that are CME Cleared separate to LCH Cleared ones. This shows that only $5.3 billion out of the $98 billion reported was on LCH. So the vast majority of the outstanding volume and trading of MAC Swaps is CME Cleared.

5Y is the highest volume tenor with around $14 billion rolling from Sep to Dec on Tradeweb in the week of 8-12 Sep.

2Y, 7Y, 10Y, 15Y, 30Y have volume in the range of $3 billion to $6billion rolling.

Summary

MAC Swaps for the first two delivery months are MAT.

The Sep to Dec roll provides a good opportunity to observe the cumulative volume for each delivery month.

Assuming the majority of the outstanding volume is the front contract, we can use this to estimate the size of the USD MAC Market.

SDRView aggregates MAC trades, but the volume is capped for block trades.

SEFView shows us that Tradeweb and BSEF have the majority of the volume in MAC Swaps.

The majority of roll activity took place on Tradeweb in the week of Sep 8-12.

Using this we estimate the size of the USD MAC Swap market as around $80 billion of outstanding notional.

While this is small it would be interesting to compare this with IMM Swaps or Swap Futures.

It will be even more interesting in to look at the Dec to Mar roll (or indeed the previous Jun/Sep one) and see how the volumes change.

 

Tags: FinReg, Blog , Derivatives , Regulation , Tradeweb Institutional