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OTC, Futures, Benchmarks and Repo

February 2020

OTC, Futures, Benchmarks and Repo – February 2020

Strong volumes continue for interest rate derivatives

ASX closed 2019 with strong OTC activity in December, A$1,447bn cleared, up 407% on pcp and up 183% YoY.

ASX OTC Clearing notional outstanding fell in December as a result of compression activity on the service, with open interest returning to growth in January 2020 and ASX OTC clearing activity up 68% on pcp.

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A$14,733 billion

Notional value cleared CY2019

↑ 183%

total notional value cleared CY2019 vs CY2018

January 2020 OIS activity accounted for

81%

of volume versus a CY2019 average of 72%

 

A$1.2 trillion

Total notional cleared Jan 20

↑ 68%

in total notional cleared Jan 20 vs Jan 19

ASX’s interest rate futures activity closed 2019 on a high, up 12% on pcp.

In January 2020, interest rate volumes were up 6% on pcp. Speculation on interest rate moves, the impact of the bushfires on GDP and the ongoing effect of the coronavirus on the economy is expected to drive volatility in the futures markets for the near term.

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ASX 24 Bond Futures Roll Response to consultation feedback

On 26 February 2020, ASX released its response to submissions on the ASX 24 Bond Futures Roll consultation.

ASX received 36 written submissions in response to the consultation paper, all of which were provided on a confidential basis.

ASX intends to implement a change to the minimum tick increment to the 3 and 10 Year Treasury Bond contracts for the June 2020 and subsequent expiry periods.  Further details on the contract specification changes, implementation timeline and a summary of the feedback received from market users are outlined in the response paper.

Read summary paper

Regular reviews of interest rate products – feedback is due by 28 February 2020

ASX 24 Trade Cancellation Policy: Proposals for Change (Options and 20 Year Bond Futures)

ASX is consulting on two potential changes to the ASX 24 Cancellation Policy;

  • The removal of the No Cancellation Ranges (NCR) for all exchange traded options (ETOs), including the Single Session Options.
  • Amendment to the Extreme Trade Range (ETR) for the 20 Year Bond Futures product.

ASX is also seeking feedback on the current cancellation ranges for all other ASX 24 products.

Read consultation paper

Benchmarks

BBSW is now included on ESMA’s register for third country benchmarks allowing BBSW to be used in the European Union.

BBSW - Australia's first licenced benchmark Administrator

On 1 July 2019, ASX benchmarks was formally granted an Australian Benchmark Administrator Licence by ASIC.

BBSW volume insights are available on the ASX website (BBSW volume report), updated 24 hours in arrears.

  • QTD 91% traded inside the rate set window and 2-3 VWAP tenors formed per day.
  • Average daily eligible volume $1.8bn.

Annual reviews

ASX Collateral Tri-party - record 48% market share of RBA OMO

In Q1 2020, ASX Collateral repo balances increased in line with market activity.

Whilst RBA OMO balances fell from approximately $60bn to $40bn in the past seven months, ASX Collateral tri-party repo market share of RBA OMO has increased over the period. Balances hit a record high of 48% in February 2020 as customers continue to realise the automation and straight through processing benefits of tri-party collateral management. 

Find out more on ASX Collateral

RBA Rate Indicator – 25bp rate cut fully priced in for July 2020

On 4 February the Reserve Bank of Australia left the cash rate unchanged. Market expectations of a further rate cut is fully priced in for July 2020.

The indicator calculates a percentage probability of an RBA interest rate change based on the market determined prices in the ASX 30 Day Interbank Cash Rate Futures. 

The next RBA Board meeting and Official Cash Rate announcement will be on the 3rd of March 2020.

View current market expectations for the March RBA board meeting here

ASX 24 Night Block trade threshold changes

Following a review of block trade threshold for ASX Interest rate products, ASX has increased the minimum block trade threshold for the 90 Day Bank Bill Futures effective 3rd December 2019. This change is a positive reflection of the growth in liquidity during the evening session.

Review summary of results

Repo rates and spreads* - 2019 in review

2019 Summary:

In a declining rate environment outright repo rates fell from 2.20% to 0.85%, averaging 1.42% and finishing the year around 1.15%.

Secured funding repo rates continued to trade at a premium to unsecured lending rates.

Average repo spreads* in 2019 were:

  • +11.6 bps over 1m BBSW
  • +28.6 bps over RBA Cash Rate
  • +32.2 bps over 1 month OIS

Quarter end repo rate spikes continued to be seen with spreads jumping to +40-55 bps over RBA cash rate.   

Repo outperformance over RBA cash rate averaged 27% in 2019 ie the repo rate on average was 27% higher than the RBA cash rate.

*Source: RBA, Bloomberg

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