Boost for the City as UK trading venues regain top spot for Sterling swaps with even greater share than before Brexit

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.

In fact, a third of all GBP swaps and 57 per cent of on-venue GBP swaps are now executed in UK venues, the highest ever recorded share, as a percentage of all GBP swaps, according to an analysis by OSTTRA-owned MarkitSERV.

In contrast, EU venues had just a 2 per cent 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 per cent), 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 per cent in March, while SEFs had 39 per cent, and EU venues had a post-Brexit low of just 4 per cent.

EU venues overtaken

The findings also show that SEFs have recently overtaken EU venues to become the primary trading location for Euro swaps, with 26 per cent of all Euro swaps and 47 per cent 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 per cent. SEFs also now account for 50 per cent of all USD swaps, with UK and EU venues accounting for 6 per cent and 4 per cent respectively.

“Market share is one aspect of this post-Brexit OTC derivatives trading location story, while market access is the other,” said Kirston Winters, Managing Director at MarkitSERV, since recently part of OSTTRA.

“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.”

Kirston Winters

“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,” Winters added.

“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.