US Swap Activity Slows as Mandatory SEF Trading Begins

US swaps trading practically came to a halt on the first day of mandatory SEF trading.

This Tuesday (February 18th) marked the first day that trades had to be executed through SEFs in the US. And it seems that traders aren’t quite ready to jump on board.

A total of 143 swaps were executed on Tuesday for a notional value of $14.6 billion. This trade count is about 81% down from the most recent pre-mandatory SEF trading day (February 14th). On Friday, 764 swaps were traded for a notional value of $65.8 billion.

It seems that many traders are holding back, waiting for others to test the waters and waiting to see if there are any issues before getting back into the swing of things. And while dealers have admitted to being a bit disappointed by the initial turn out, the results weren’t unexpected, perhaps having learned from the poor turn out after US clearing deadlines just last year.

Surprisingly, while interest rate swaps dropped off due to their inclusion in mandatory SEF trading regulation, swap futures did not see a similar spike in trading, even though they do not fall under the regulation.

It seems very likely that normal trading volumes will resume once traders acclimate to the new rules.