MAT IRS Product Scope Consensus? | SEF CFTC Submissions Converge

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Perhaps a market consensus is starting to form on which products should be mandated on SEFs?

Why?   Javelin (in response to comments from CFTC and market participants) adjusted it's submission to move closer to those of TrueEx and TradeWeb.  (See Summaries of three MAT submission letters at the end for more details.)

Why not?  It's too soon to call a consensus because:

  • Javelin kept in scope all swaps in the 2-30 year maturity range rather than limiting to liquid tenor points (as TrueEx and TradeWeb submissions do).
  • Given the three submitters so far only account for about 1% of the fledgling IRS SEF volumes to date CFTC needs to wait for the submissions of the IDBs and Bloomberg before firming up the consensus.  (Though TradeWeb / DealerWeb may have considerable offshore volume not showing in the reported figures yet).

What is the implied consensus so far?  The mathematical intersection of the three proposals is USD spot-starting IRS with 2yr, 3yr, 5yr, 7yr, 10yr, 15yr, 20yr, 30yr maturity.  All three submissions exceed this but it looks a natural place to start.  Also the global center of USD IRS trading is the US whereas EUR and GBP IRS trading is centered in Europe. Beyond this what else would CFTC like to promote:  Basis swaps + OIS?  MAC swaps?  Date flexibility / more maturity dates?   More currencies?

How will CFTC handle this?  I've heard speculation CFTC will wave through all MAT proposals.   That would surely be reckless given mandating exchange trading has never been tried before (ever).   Solid liquidity across more platforms will likely be their measure of success.  So it would be logical that CFTC selects the most liquid subset of the submissions along the lines of the intersection above.   This would follow the recent approach of picking the more liquid subset of G4 currencies only for the IRS clearing mandate from the broader submissions of CME and LCH.  Each addition to scope risks shifting more liquidity from New York to London.  Perhaps CFTC will round out USD IRS mandate scope by adding USD basis swaps, OIS for standard dates and MAC swaps to promote that market's formation.   This would leave out less liquid date combinations from the USD mandate and also not risk chasing US EUR and GBP IRS trading offshore?

Comments please:  Will CFTC go for a more liquid subset?  Or does Footnote 88 and the CFTC approach to the October 2nd deadline signal a more radical view?


Summaries of Three MAT Submission Letters

Javelin curtailed maturities to 30yr maximum, eliminated variable notional swaps and curtailed forward starts to a maximum of 10 months forward.  However, this still means their MAT proposal would mandate all USD, EUR and GBP spot / forward starting vanilla fixed float and basis swaps with standard frequencies within the maturity range.  It includes both spot-starting and IMM swaps and includes LIBOR/EURIBOR but no OIS.   Here is the revised Javelin letter

By comparison TrueEX and TradeWeb focus on the most liquid tenor points only:

  • TrueEx's submission is already more limited focusing only on USD spot-starting IRS and MAC IRS (forward starting IRS on the next IMM date) with 2yr, 3yr, 5yr, 7yr, 10yr, 15yr, 20yr, 30yr maturity.  Here is the TrueEx letter, which also contains a slide deck at the end which spells out spot starting par coupon swaps and MAC swaps - for those interested.
  • TradeWeb's submission is also more limited than Javelin's encompassing USD, EUR and GBP spot-starting fixed-float IRS and USD and EUR basis swaps with 2yr, 3yr, 4yr, 5yr, 6yr, 7yr, 10yr, 15yr, 20yr and 30yr maturity and OIS with 1M, 3M, 6M, 9M, 12M, 18M, 24M maturities (more products and maturities but no MAC IRS).   Here is the TradeWeb letter.

 

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