Market agreed coupon contracts for interest-rate swaps
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MAC Swaps: An Analysis of Trading Trends in 2015
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The majority of dollar-denominated MAC trading on SEFs took place on three venues that target dealer-to-customer trading. It should be noted that there was a very small amount of trading on two other SEFs.
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Measured by notional value, MAC swaps accounted for Looking at trade counts reveals a slightly different picture. By this measure, MAC swap trades averaged 9.
Those dates, which are based on the standard expirations for Eurodollar futures contracts traded at CME Group, are part of the standard MAC contract structure. All MAC swaps have effective dates based on IMM dates, and there tends to be a spike of trading activity around these dates as market participants roll their positions to the next set of contracts.
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As noted above, the ratio of MAC trading to overall interest rate swap trading was larger when measured by trade count than by notional value. That reflects a tendency to trade MAC swaps in relatively small sizes. The concentration of smaller size trades suggests that MAC swap trading could migrate to a central limit order book, if the number of participants grows and they elect to transact in a central limit order book rather than using the request-for-quote model that currently predominates.
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We also analyzed trading strategies by dividing transactions into five types: The most popular curve trade was the 5YY, followed by the 10YY. Interestingly, more than half of the packages were strips that covered four points on the interest rate curve: In this section, we break down the transaction count data by tenor to provide a more granular view into MAC trading activity.
You just read: These contracts standardize agreements that have historically been bespoke and bilaterally negotiated, giving them the characteristics of futures and other exchange traded derivatives. Login Advisor Login Newsletters. That is why the right hand side of the equation is equal to the notional amount of the swap. Thus the value of fixed rate bond is: The MAC contract and others like it that are likely to follow for other types of OTC swaps could permanently change the OTC derivatives landscape for market participants and their counsel. We need to revalue the fixed leg and floating leg of the swap contract after the interest rates change and compare them in order to find the value for the position.
Dollar-denominated MAC swaps are available in 14 tenors ranging from one year to 30 years. We also sort the data by series, i.
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For this analysis, we include data for March and June IMM effective dates to reflect when those series began trading. As shown in figure C, the year tenor was the most actively traded, accounting for The 5-year was the next most actively traded, followed by the year, the 2-year and the 7-year, in that order.
Figure C also shows that the December series was much more heavily traded than the other three, with more than 2, trades in the year and more than 5, trades overall. That series also stood out for having a greater proportion of back month trading. Each series is available for trading over 27 weeks. In the three series leading up to December, trading activity was very low until weeks , when that series became the front month, and again in week 26, when market participants adjusted their positions ahead of the IMM effective date.