Metrics Trend Report Q4 2014

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    Metrics Trend Report Q4 2014

    Since 2005, Sapient Global Markets and Markit have worked together to provide the G15 banks with global derivative transaction metrics for the over-the-counter (OTC) Derivatives Regulators’ Forum chaired by the Federal Reserve Bank of New York. The dealer group community utilizes this data to increase operational efficiency, along with verifying the ranking within the group and evaluating trading activity. The key metrics encompass OTC derivatives transaction volume and electronic processing of trade confirmations and measures the time delay in issuing trade confirmations. In this article, Aaron Gill and Vassil Kirtchev provide the Q4 2014 metrics and associated highlights.

    The industry’s desire for self-regulation stated by the introduction of commitments to the OTC Derivatives Regulators Forum (ODRF) was a unique approach to a completely new industry challenge. The electronic processing of OTC transactions still remains stimulating across asset classes due to a range of dependencies, such as the availability of products on electronic trading platforms or client onboarding on electronic trade confirmation matching engines. Through the evolution of post-financial crisis market reforms, in particular the Dodd-Frank Act and the European Market Infrastructure Regulation, the need for self-regulation was superseded; however, it remains a voluntary commitment that the industry is dedicated to deliver.

    Metrics Transforming Capital Markets

    The metrics are based on targets for voluntary industry commitments, with the purpose of improving transparency, standardization and risk management across the OTC derivatives industry.

    The Federal Reserve Bank requires all industry players to report cross product, commodity and clearing metrics, supplying electronic processing deal volumes, from which industry players were ranked. These statistics are crucial to gauge the varying operational efficiency of contributors and their level of automation. The facilitation of industry-wide working groups, on a monthly basis, aims to improve the consistency and standardization of reporting criteria across all dealers, to reflect regulatory demands.

    The continued focus on metrics and analytics is becoming increasingly important in the financial markets’ current data-driven environment. Financial institutions going forward will look to seek much more sophisticated data and benchmarking to become more competitive.

    The contributors to the data are Bank of America-Merrill Lynch, Barclays Capital, BNP Paribas, Citi Group, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Nomura, Royal Bank of Scotland, Société Générale, UBS and Wells Fargo.

    The quarterly Markit Metrics Trend Report is published by Sapient Global Markets and can be found on the Markit website (www.markit.com).

    Credit Derivatives

    • During Q4, average deal volumes for credit derivatives were considerably volatile, averaging at 29160 per month for the quarter. The median deal volumes showed similar fluctuations.
    • Credit derivatives are the most automated product type where, by the end of the quarter, 98% of the traded volume was electronically confirmed. The electronically eligible volume as a percent of total volume remained fairly steady over the quarter.
    • In terms of confirmations, electronically confirmed credit derivatives as a percent of electronically eligible saw an upward trend and reached almost 100%. Outstanding confirmations fell to an average of 262
      by the end of Q4.
    • Business days outstanding saw an upward trend and finished the year at 0.06 for outstanding confirmations aged over 30 days.
    • Both average and median pre-netted and post-netted settlements were fairly converged over Q4.
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    Equity Derivatives

    • For equity derivatives, the average and median deal volumes are the most diverged out of all product types. Deal volumes saw a surge and increased to an average of 9335 in December 2014.
    • The data shows that the gap between average not electronically and electronically confirmed volumes has converged. The electronically confirmed volume as a percent of total volume of OTC equity derivatives transactions had an upward trend and finished the year at an average of 51%. The electronically eligible volume as a percent of total volume showed similar trends.
    • The electronically confirmed as a percent of electronically eligible trades finished the quarter at a 93% average. The average total outstanding confirmations increased by 270 in December 2014 compared to the same time the year before.
    • The average business days’ worth of outstanding confirmations aged over 30 days went up by 0.1 by the end of Q4 in comparison to how Q3 ended.
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    Interest Rate Derivatives

    • The average and median trade volumes for interest rate derivatives remain fairly converged, with a median value of 41879 and an average value of 43041 for December 2014.
    • The electronic volume as a percent of total volume ranged between 90-93%, and the electronically traded volumes for December were at 40064, whereas for December 2013 they were at 25726. The electronically eligible volume as a percent of total volume remained steady at 96-97% throughout the quarter.
    • The electronically confirmed as a percent of electronically eligible saw a positive trend over the quarter, finishing the year at a 96% average. The average total outstanding confirmations declined by 236 since the end of Q3 2014.
    • The average business days’ worth of outstanding confirmations aged over 30 days has been on an overall decline since June 2011, going from 0.08 to 0.04 in December 2014.

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    The Authors

    Aaron Gill

    Vassil Kirtchev

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