It was great seeing so many of you at IDX – and what seemed like almost as many at the Jugged Hare. Community-building events like this are important, and we see open access to markets in much the same way. In other words, encouraging dialogue, innovation and competition can only be good for the industry.
In much the same light, we felt that the EU proposal on the location of clearing houses was broadly sensible and fair; asking for additional supervision, a position that LCH has publicly supported.
Back here at CurveGlobal, it’s full-steam ahead. We’re in the process of onboarding a number of big-name banks, which we’ll be able to tell you more about at our July 3rd afternoon MiFID II and Open Access event tomorrow. Click here to sign up if you haven’t already.
Finally, thanks to everyone helping to make CurveGlobal a success. This truly is an exciting opportunity to open up the markets for the benefit of all.
MiFID II TO PRISE OPEN THE FUTURES MARKET
The implementation of MiFID II – with its more robust requirements for best execution and ‘Open Access’ provision which forces the unbundling of services and fees – seeks to prise open the sealed, vertical silos that have characterised the derivatives landscape for decades. This will lead to genuine competition in the major futures markets by 2020.
The pressure for this seismic change is not just regulatory. Futures markets, in particular, have long outgrown their original infrastructure and innovation has been lacking, while the opportunity to leverage technology to drive efficiencies across correlated markets, such as government bonds and interest rate swaps, has been largely ignored.
While futures exchanges remain virtually unchanged, that is not the case for the instruments they list. Each day, $10 trillion of notional is traded in the listed and over-the-counter derivatives markets, equivalent to the annual GDP of China. Over twice as many interest rate swaps are traded, by volume, than in the US Treasury debt market. Even after netting out positions, the OTC derivatives market alone is valued at around $1 trillion. The exchange-traded market is twice that size.
With the prospect of greater choice, more competition and lower pricing, it’s now up to participants to weigh the tangible benefits of moving their business against the short-term requirement for behavioural change.
The levelling of the playing field – especially for interest rate derivatives – will be seen as a major win for the regulators, opening up the European marketplace and ensuring that ‘open access’ becomes real in terms of unbundling services and fees, increasing competition and innovation, and ultimately benefit customers. Few can reasonably argue against this, except possibly some technology providers that rely on their tight integration with legacy exchanges.
We’re gathering momentum with new bank participants, more orders and greater depth in the order book. Our Calendar Spread and Strategy order books are also building. Take a look at the Bloomberg Futures Contract Table below for a typical CurveGlobal Short Sterling order book:
See below for the cross-product margin savings available for a Gilt and Bund Asset Swap. The footnotes provide the specifics of each of the trades to replicate this analysis, while the chart shows the comparison between collateralising each leg on its own, versus combining all together using LCH’s Spider. This is an example of the margin and capital savings your firm will be able to achieve once Spider 2.0 goes live later this year.*
Long position 1532 Long Gilts 7 Sep 2017
Swap is forward start, stub to first semiannual coupon
SWAP notional payer – GBP 195,000,000
Forward start date – 1 Sep 2017
Stub start to 22 Oct 2017
Coupon dates, semiannual – 22 Oct and 22 Feb
End date 22 Oct 2027
GBP 1.20% fixed
Long position 1829 Bunds 17 Sep 2017
Swap is forward start, stub first coupon
SWAP notional payer – Euro 291,900,000
Forward start date – 12 Sep 2017
Stub start to 15 Mar 2018
Coupon date – 15 Mar
End date 15 Mar 2027
Eur 0.85% fixed
PRESS ARTICLES OF NOTE
THE CITY SHOULD NOT OVERPAY FOR A EURO-CLEARING DEAL
ECB AND ESMA WOULD CALL SHOTS ON EURO CLEARING
EUROPE TO BOOST OVERSIGHT OF NON-EU CLEARING HOUSES
FOW, Global Investor Group
BRUSSELS INSIGHTS ON POWER TO CONTROL EURO CLEARING AFTER BREXIT
CLEARING BATTLE HEATS UP AS BOE AND ECB SOUND CONFLICTING WARNINGS
FORCING THE €900 BILLION A DAY CLEARING BUSINESS OUT OF LONDON IS IN 'NO ONE'S ECONOMIC INTEREST,' CARNEY ARGUES
James Brinsden, Programme Manager
James Brinsden is responsible for all internal and external change management. He works closely with service partners (LSE, LSEDM and LCH) to ensure CurveGlobal has an effective and stable operating environment, as well as a sustainable and deliverable change roadmap. Additionally, James is responsible for onboarding all new CurveGlobal participants.
James joined CurveGlobal in February 2016, having previously worked as Head of Operations and Change at ICE Benchmark Administration (IBA) after spending several years at LIFFE. Prior to embarking on his Programme Management career in Financial Services in 2004, James spent several years as a Management Consultant, for Accenture and DiamondCluster International. He also served six years in the British Army as a Royal Engineer Officer. He lives in North Norfolk with his wife Sophie, his son Ben, and daughter Emily.
CATCH UP WITH CURVE
CURVEGLOBAL // MIFID II AND OPEN ACCESS
3 July 3:30 pm BST
CurveGlobal offices // London, England
GFII // PENNYHILL PARK 2017
11th Annual OTC Derivatives Summit
13 - 14 July
Pennyhill Park Hotel // Bagshot, Surrey, United Kingdom
FIA // 33rd ANNUAL FIA EXPO 2017
33rd Annual FIA Expo Chicago
17 - 19 October
Hilton Chicago // Chicago, United States
To find out more about CurveGlobal or to offer suggestions on improving this newsletter, contact us at +44 20 7797 1055 or firstname.lastname@example.org.