Before we look at some data on the Chinese swap markets, it is really important that readers are familiar with some of the terminology. Let’s start with the basics in terms of what the currency is actually called!
This blog looks at Interest Rate Swaps (IRS) – the most widely traded type of Rates derivative in CNY. Yes, Cross Currency Swaps and Interest Rate Options trade as well, but we focus on IRS for today’s blog.
Looking at SDRView data, revelas the following “market standards”:
For the onshore CNY market, CFETS publishes IRS data for the whole curve for swaps referencing both the Repo Rate and vs 3m SHIBOR. Take a look – it is a nice example of how transparent swap markets can be:
CNY trading therefore essentially operates across up to 6 pools of liquidity:
Can we estimate the relative sizes of these six pools of liquidity?
Cleared markets remain the most transparent. There are two CCPs who see significant volumes in CNY – SHCH and LCH SwapClear. The chart below from CCPView shows Average Daily Volumes for the past 3 years and in 2023 so far:
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The data shows that “Cleared CNH” does not really trade (so far). Turning to the bilateral markets, we do not have the same degree of transparency. How much of the market might be uncleared?
The only source of data for global uncleared markets that we have is the BIS Trienniel Survey. The most recent data covers trading in April 2022, and suggests a total CNY IRS market size of $30bn in terms of Average Daily Volumes:
As the chart shows, the “offshore” or “non-residents” market has been growing significantly in each survey year. In 2022, “non-residents” made up 58% of volumes. Remember, this is across both cleared and uncleared volumes.
Given that we saw an ADV of $21bn in cleared CNY swaps last year, it suggests that 74% of total volumes are cleared. Is that really possible? It seems a very high clearing rate for a market with 6 different optionsAhmedabad Stock. Taking the data at face value leads to the following tables:
And expressed as percentages:
Assuming our interpretation of the data is accurate, that is a pretty good take-away for this blog!
The two most transparent pools of liquidity are:
Whilst paying for everything in USD may look attractive from a portfolio perspective, it is not 100% effective as a hedge vs underlying CNY assets/liabilities because the FX rate of your payments will vary with time.
CCPView includes volumes for all of the CCPs that are active in CNY interest rate swaps:
I was pleased to read that both HKEX and Risk.net have recently quoted Amir’s CCP statistics for the relative market share of SHCH and LCH SwapClear. Returning the favour, here are some updated stats:
I took a look at some of the available data 3 years ago, which is well worth a refresher:
For 2023, let’s look at where volumes in CNY trading sit relative to other currencies in Rates derivatives:
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Finally, we can recast those ADVs in terms of market share statistics for the CCPs:Indore Investment
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I am not sure how accurate it is to think of this as “market share” between the CCPs. The clearing houses are trading different products, as discussed above. Are they really competing for the same volumes?
Pune Wealth Management
