New Reporting Requirements Let You Watch Swaps Trading In Fake-Real-Time, If That Sounds Like Something You’d LikeBy Matt Levine
What should we do with the new real-time swaps data depository? As of the new year, the CFTC is requiring all swaps dealers to report their swaps trades in real time, starting with rates and credit index trades, and here is the data depository with those (anonymized) reports. It’s … not particularly real-time! It’s not particularly user-friendly either, I gotta say; somebody is presumably planning to make a lot of money translating these zip files of haphazardly coded data into Useful-ese.
But I guess we can pick at it now, no? What is interesting here? That sort of depends on what you want. If, like me, you’re into general bloviating, this seems like as good a source as any for a rough depiction of what trading activity in the credit index and rates derivatives markets looks like. So, for example, here is a delightful table of notional amounts traded yesterday across rates products and currencies; the notionals appear to be in local currency so one important takeaway is “boy a South Korean won is not worth a lot of money.” Or here is a toy chart I made by downloading the “cumulative slice report” for rates trades and focusing on US-dollar-only trades, then slicing them by what sort of rates they used1:
One conclusion to draw here is, remember when people were talking about phasing out Libor because it’s so corrupt and made-up and stuff? That does not seem to be of much interest these days.2 I credit the Wheatley Review.
On the other hand, if you are say a company or municipality interested in trading a swap, this data can tell you what pricing should look like based on publicly available trades, which is useful because you don’t want to be at the pricing mercies of your bankers without a market price check to protect you.3 Or that’s the theory. In practice:
The CFTC is allowing many trades to be reported after a delay, in some cases several hours, while it finishes disclosure rules. That gap isn’t much of an improvement over trade data already available — for a fee — through services like Bloomberg or brokers, said Luke Zubrod, director at Chatham Financial, an adviser of customers in the swaps market.
“It would seem it is a step in the direction of real-time but not there yet,” Mr. Zubrod said, adding he is “skeptical” the new data will provide much value.
As is, the data is “not useful for pricing purposes,” because the value of interest-rate swaps can change several times inside of one minute, let alone an hour or more, said Peter Shapiro, managing director at Swap Financial Group, a firm that advises end-users.
A cynic might predict that, when unsophisticated clients quote “real-time” prices from these reports to their bankers, the bankers will tell them “ooh that data is not useful for pricing purposes” roughly one-half of the time.4
Another thing this data won’t do is satisfy Frank Partnoy and Jesse Eisinger, whose plea for more trustworthy banking disclosure was a big thing yesterday. In some ways depositories of swaps trading can be useful in mapping out the contours of what risks what banks are exposed to,5 but mostly not: though the big banks will increasingly be reporting their swaps trades through DTCC, those trades will be anonymized so you’ll never know “oh hey Wells Fargo is getting long a lot of Libor” or whatever. There are places where you can get a little bank-specific derivatives disclosure – their 10Ks, for one, or call reports – but this has nothing like the price and terms information that the new swap reporting provides. From the outside, derivatives trading is frustratingly Heisenbergian: you can know what the trades are but not who does them, or you can know who does them but not what they are.
Spotlight on Swaps Lacks the Wattage [WSJ]
Watch the OTC Market in real-time [The OTC Space]
CFTC Announces Real-Time Public Reporting of Swap Transactions and Swap Dealer Registration Began December 31, 2012 [CFTC]
DTCC Real-Time Dissemination Dashboard [DTCC]
DTCC Swap Data Repository Real-Time Reporting Now Live [DTCC]
1. Don’t, like, believe these numbers or anything. The “cumulative slice” seems to be all trades made yesterday, plus some filler. I attempted to slice to just USD/USD trades but the data is full of weird coding so you can never be quite sure; there’s a nontrivial amount of “Fixed/Fixed” swaps here which seems suspicious. Also these are not just swaps; they include forward rate agreements and also various sorts of options and exotics that may or may not be usefully captured in the depository.
Is it useful context to note that, in contrast to the $35ish billion of OTC rate and credit swaps notional captured here, ~$131bn of stocks and ~$17bn of corporate bonds trade daily in the U.S.? Anyway that seems to be about true.
2. Query: does swap customers’ overwhelming revealed preference for Libor, rather than Fed Eurodollar rates, even post-scandal, cast doubt on this report claiming that Libor manipulation cost Fannie and Freddie more than $3 billion, based on differences between Libor and Eurodollar rates? Like, if Libor was the wrong rate and ED was the right rate, wouldn’t people be moving towards it as a swap reference?
For the record, I am not that cynic; that is not a way to live particularly long.
5. See, e.g., Lisa Pollack’s London-Whale-sleuthing based on public data on CDX trades.