The Markets ConversatION Podcast

Quick Takes: 3Q23 CCP Volumes and Share in CRD and FXD

October 13, 2023 | Duration: 8 minutes

Speakers: Amir Khwaja and Chris Barnes


This week’s Quick Takes has Amir reviewing Credit Derivatives (CRD) and FX Derivatives (FXD) volumes and market share at Clearing Houses (CCPs) in 3Q 2023.

  • CRD – Index, Single-name and Swaptions
  • In USD, CDX and CDS volumes were down
  • In EUR, iTraxx volumes were down, while CDS were up
  • In EUR iTraxx, LCH CDSClear share has doubled from a year earlier to 26%
  • In EUR CDS, share is now ICE Clear Credit 55% and LCH CSDClear 40%
  • FXD – NDF, Options, Forwards and Swaps
  • NDF volumes up 10% to $3.3 trillion from a year earlier
  • FX Options volumes doubling with $363 billion, all at LCH ForexClear
  • FX Options outstanding notional increasing quarter on quarter


Quick Takes: 3Q23 CCP Volumes and Share in CRD and FXD

Ali Curi: Hi everyone and welcome to ION Markets Quick Takes. I’m Ali Curi and every week along with my guests Amir Kwaja 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: Hey Ali.

Chris Barnes: Hey Ali. How you doing?

Ali Curi: I’m doing great. It’s great to have you both here. Welcome to Quick Takes. Amir, let’s start with you.

What are your Quick Takes for this week? Which headline from the ClarusFT blog would you like to discuss?

Amir Khwaja: I did a blog called “Third Quarter 2023 CCP Volumes and Share in Credit Derivatives and FX Derivatives.” So I’ll talk about that, starting with credit derivatives, in which index trading, so CDX, investment grade, high yield, emerging market and ITREX Europe are the biggest products there.

So the volume there is 10 times the volume on single name CDS. So again, volumes are down, so I guess the main story from a year earlier this quarter, but the main story here is the change in market share due to ICE Clear Europe, which is a UK registered CCP or domicile CCP, which is about to close down and, on for credit derivatives, and their volume is moving either to ICE Clear in the US, or LCH CDSClear SA in France, which is a European CCP. So that’s the main story. So there’s some change in market share, particularly in ITREX Europe and single name in Euros. And it does seem like more of the ISCLAIRE Europe credit share is going to LCH CDSClear and SA than it is to ICE Clear credit in the US, I think.

So that’s the main story there. I think in FX derivatives, which are really NDFs, non derivable forwards, FX Options and the G10, et cetera, the market share is 98 percent LCH Forex clear, NDF is the biggest volume product, I think about $3 trillion traded in the quarter, which is up 10 percent from the prior year.

But the big story again here is that FX Options volumes has doubled. So it hit $360 billion in the quarter from below $150 a year earlier. So that’s a big story because I think that has become by far the biggest OTC option cleared product. In fact, probably the only well, yes there is some volume in swaptions on credit indices.

But again, it’s tiny. That’s the only other clear to OTC product. So FX options is looking good. So it looks like there’s real increase in volume and outstanding notional there, LCH4 is clear quarter on quarter into 2023, right? So I would say those would be my main takeaways.

Chris Barnes: Amir, quickly on credit. Q3 obviously covers September, which is a roll month for credit volumes. How’d you go about making sense of whether those roll volumes have been up? What it means compared to Q2? Has there been any changes in Europe from rolling out of ICE and into LCH, et cetera?

Amir Khwaja: Good question, Chris. Yeah. So in CCP View, we basically collect the volumes at a index series level.

So we can see the volume in the old contract and the new on the run contract. I forget the version numbers. So that breakdown is there, but normally because I’m comparing quarter on quarter, so I’m comparing the volume in this third quarter with the yearly third quarter, there’s roll in both months, right?

Yes, I could have drilled down further and looked at how much traded in the two versions of the same contract, the two series of the same contract, to see whether there was a difference.

Chris Barnes: We’d look in CCP View to see if the old series was traded, for example, at ICE Europe. And the new series is mainly LCH to see if the role was taken as a transition.

Amir Khwaja: Correct. We could do that in the drill down. I didn’t do it in the blog, people with less data are able to do that.

Chris Barnes: Makes sense. One thing on the FX I wanted to highlight, so not necessarily a question, Amir, although I would question why you didn’t link to my original blog on this, but back in January this year, I wrote a blog called “NDF Clearing – What’s New in 2022?”

That looked at cleared NDF volumes compared to back then, the recently published BIS survey, which gives you an average daily volume of NDFs for the global market. Back then, to put some numbers on it, the BIS reported in April 2022 an average daily volume of NDFs of $260 billion dollars. CCP View in April 2022 had cleared volumes of $45 billion dollars, averaged daily volumes.

So that meant that about 17 percent of the global market was cleared for NDFs. I saw your blog, and of course the blog is written in terms of quarterly volumes, but CCP View also publishes Averaged Daily Volumes as well. So if I look at the Average Daily Volumes for Q3 of 2023 in NDFs, they were actually at 60 yards.

So the proportion of the global cleared market, assuming that it’s been pretty stable in terms of total size has increased from 17 % to 23%, which I think is probably one of the fastest increases that we’ve seen, particularly for FX products in terms of increasing amounts of the market being cleared.

For NDFs, just to remind people, there isn’t a clearing mandate. So this is all voluntary clearing. How voluntary it is has been a topic that I’ve written about before, because NDFs in bilateral space are subject to ISDA SIMM and to unclaimed margin rules. So the unclaimed margin rules in this case can make it somewhat of an economic mandate clear because you send your NDFs into clearing your benefit from multilateral netting.

As long as you’re not too directional, you can see in an initial margin benefit from clearing your NDF portfolio. So I just thought it worth highlighting in terms of this particular blog, looking at effects volumes so that we do have a complimentary blog out there for the Clarus data back from January, and one that we should probably update sooner rather than later.

Amir Khwaja: Yeah, good going Chris.

Yeah, just a quick count. So you’ve written 35 blogs this year. So I will I will claim lack of memory on that LDF 1 that you wrote.

Chris Barnes: It’s somewhat of a purpose of this podcast as well. To make sure that I read Amir’s blogs and that Amir reads mine as well.

Amir Khwaja: So we’re saying, so NDF, so it’s about 23 percent cleared volume economic. And did we have a rough idea on FX options? Clearly much lower, it’s single digits, FX options, clearing.

Chris Barnes: Tiny.

Amir Khwaja: Tiny. Because that’s a large market of the overall cleared market.

Chris Barnes: But I think it’s interesting to note that there’s potential traction in both of the products at the same time.

There’s increases in FX options, volumes, and there’s increases in NDF as a proportion of the global market.

Amir Khwaja: And we’re saying, without a mandate, there are economic reasons why certain participants are choosing to move a bilateral product into clearing for clearing efficiencies or capital or average ratio, uncleared marginal benefits.

Yeah. That’s good.

Chris Barnes: And then just a general comment on the blog. It’s another blog that’s well suited to training AI. Back to our last week’s comments about these structured blogs, which are, they’re not repetitive, that is unfair to say, but they are consistent in terms of their style and approach and content.

Amir Khwaja: Yes. I’ve noticed on the Bloomberg website their market summary often at the bottom says, “Written with the help of Bloomberg Automation,” right? Which I assume is an AI type thing, right? So we need something that says written with the help of Clarus or ION Automation. Yeah. Once we can get some, AI on our private data there, right?

Chris Barnes: Yeah, it’s true. That’s the plan. Ali, I will pass it over to you before you’re replaced by an AI robot next week.

Ali Curi: Let’s hope that does not happen. Gentlemen: Amir, Chris, thank you for sharing your Quick Takes. Let’s do it again next week.

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, formerly Twitter, and on LinkedIn.

Until next week, thank you for joining us.