UK trading venues have recovered their position as the biggest location for on-venue execution of GBP interest rate swaps (IRS), giving them a greater market share than pre-Brexit, according to MarkitSERV analysis.

Data from the OSTTRA owned firm shows that a third of all GBP swaps and 57% of on-venue GBP swaps are now executed on UK venues, the highest ever recorded share, as a percentage of all GBP swaps. In contrast, EU venues had just a 2% share of all GBP swaps in March, half of their 2021 average, and are now back at September 2020 levels. Swaps and Execution Facilities (SEFs), US based derivative trading venues, had their highest share of all GBP swaps since September 2021 (23%), but well below the levels seen in the first half of last year. When looking at on venue GBP swap volume only, UK venues had 57% in March, while SEFs had 39%, and EU venues had a post-Brexit low of just 4%.

The findings also show that SEFs have recently overtaken EU venues to become the primary trading location for Euro swaps, with 26% of all Euro swaps and 47% of on-venue Euro swaps now executed on a SEF. UK venues have remained largely flat at their post Brexit norm of just under 10%. SEFs also now account for 50% of all USD swaps, with UK and EU venues accounting for 6% and 4% respectively.

“Market share is one aspect of this post-Brexit OTC derivatives trading location story, while market access is the other. Some EU and UK banks, as well as EU and UK investment managers, have reduced market access for transactions that are subject to an EU/UK derivative trading obligation,” said Kirston Winters, Head of Legal, Risk, Compliance and Government and Regulatory Affairs, OSTTRA.

“The era of truly global swap markets appears to be a dim and distant memory. Investment managers in the UK are unable to trade on EU venues, while clients in the EU are unable to trade on UK venues for derivatives trading obligation products. All this means that clients must either stay in their home market or utilise a SEF to gain broader liquidity, while unable to access the other European market available,” he added.

Source: OSTTRA