Will Acworth, Senior Vice President, Futures Industry Association
AT: Is there a narrative coming out of the figures?
WA: We are looking at data across three asset classes (IRS, CDS and FX) and each asset class is following its own trend. For example, if you look at the credit sector, 90% of the trading is in products that must be traded on a SEF.
On the other hand there is no mandate for FX so therefore every single trade in the FX category that is being done on a SEF is voluntary.
AT: What about growth in volumes?
WA: What we've seen over the last year is that the level of trading has bounced along at more or less the same level. The general trend is heading
upward, but not by that much. March may have been a turning point, however. For the first time since we've been tracking this data, the volume of trading in that month was higher than the previous peak in January 2014, which was the last month before the mandatory SEF trading rules started taking effect.
Part of that was due to the semi-annual update to the CDS index products, which tends to lead to higher volumes as people roll from one index to another. But rates and FX trading also picked up, so the increase in trading may reflect a longer term trend.
AT: Which venues show dominant market share?
WA: In the FX sector, interdealer brokers like BGC, GFI and Tradition account for the majority of SEF trading, and that hasn't really changed since the start. But one of the smaller platforms to highlight is Thomson Reuters SEF, what used to be FXall. Their business, which mainly serves customers, has been ticking up steadily.
In credit, Bloomberg has carved out a dominant market share, generally between 65% and 80% of volume. Basically, two-thirds or more of all SEF volume in credit products is going to Bloomberg. That is a clear winner.
Interest rates is a much more fragmented market. If you exclude forward-rate agreements (FRAs), which gives a more valid measure of market share, the inter-dealer brokers have roughly two thirds of the market, but their share is slowly getting smaller.
Bloomberg and Tradeweb have most of the remainder and if you look at where they are today compared to a year ago, it's clear that they've been growing substantially in terms of both absolute volume and market share. One of the smaller SEFs that is worth highlighting is trueEX. Our data for March show trueEX had just over 4% of the market excluding FRAs, which is a big jump from where they've been in the past.
Going back to the big picture, I think we are still waiting for the asset managers and hedge funds and the rest of the buy side to come into the IRS market in a significant way. Tradeweb and Bloomberg are the two big contenders for customer trading. Those two companies have different approaches so it will be interesting to see how that shakes out. Or alternatively, will one or more of the IDBs change their business model to make it more appealing to the customers?
The SEF landscape is still in formation, the race is not won yet. Not by a long shot.
Source: Futures Industry Association