European Swap Trading: Slow and Steady Wins the Race?

Europe is finally beginning to implement the much-delayed program of reforms that will require an overhaul of pre-trade requirements as the Markets in Financial Instruments Directive and Regulation (MiFID II/MiFIR) come into force over the next two years, starting with the clearing mandate. This new regime will reshape the landscape for all swap market participants. The regulations have helped increase flows to central clearing houses, which in turn, has driven swap compression and altered broker relationships. Meanwhile, the global picture has been muddied by the proliferation of different regional regimes. Data and reporting are not harmonized and this poses a great challenge for global players with large swap portfolios. Europe may benefit from the emerging global infrastructure.

Key points covered in the report include:

• Key points of difference between the US and European regulatory regimes and the effect they will have.
• The emerging global framework and infrastructure aimed at processing and standardizing data from reported trades, and the third parties offering services to manage competing obligations.
• Trends in clearing flows by region, and the future shape of the market in the context of increased implementation.
• The effect of regulation on trading behaviour globally, and the effect on large swap market participants.

TABB Group spoke with swap market participants and independent data providers to provide context on the conclusions of this report.