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In the latest development in the IBOR transition, on the weekend
of 25 July, we saw the major CCPs perform the much-anticipated Euro
discounting and price alignment transition from using EONIA to
EuroSTR (a.k.a. €STR) for all Euro OTC interest rate products. We
understand that all compensation payments have now settled, many of
which were straight through processed into firms' risk systems by
MarkitSERV's Netting Synchronization Service.
The question market watchers have been asking is would the
hereto anaemic trading activity in EuroSTR pick-up following the
switchover of discounting and PAI/PAA at the major CCPs?
Well after one week we have the answer… Prior to the switchover,
in the first 18 trading days of July, EuroSTR made up just 5% of
all Euro OIS trades and since the switchover, the last 5 trading
days of July, it has made up just over 11% of all Euro OIS trades.
So, we are far from reaching a tipping point but it's certainly a
significant jump in EuroSTR liquidity.
For context when you include IRS referencing EURIBOR in the
denominator EuroSTR jumped from 0.6% to 1.6% on the same basis.
The challenge for many market commentators has been the
available public reporting; (i) many Euro swaps do not have a US
nexus and thus are not subject to the US CFTC Part 43 real-time
public reporting rules and (ii) the Euro swaps subject to MiFIR
Trade Reporting to an APA, are subject to a 4-week deferral.
Note: The calculations are based on (i) all new single
currency fixed versus floating interest rate swaps referencing
EuroSTR / all new single currency fixed versus floating interest
rate swaps referencing either EuroSTR or EONIA and (ii) all new
single currency fixed versus floating interest rate swaps
referencing EuroSTR / all new single currency fixed versus floating
interest rate swaps referencing either EURIBOR, EuroSTR or
EONIA.
Posted 03 August 2020 by Kirston Winters, Managing Director − MarkitSERV, IHS Markit
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