Sometimes I sit down to write these blogs and I have to think long and hard about the message I want to share. Other times, such as this, the ideas and sheer number of exciting things I could talk about means I need to really edit down my post (really – who wants to read 3000 words from yours truly?!).
Before we start on derivatives, I wanted to share a personal note – those of you who follow these missives perhaps know I'm not the most natural of writers. In fact, if you don't know me super well then you might not know, but I'm dyslexic so banging these out takes me some time. I don't make a big deal out of this, as I'm fortunate – working on software helps with spelling and editing – and I'm self-taught to simplify the message I'm trying to communicate. Together this means I can neutralise this disability.
I'm immensely proud to work at LSEG. On disabilities and diversity and inclusion more broadly, they are brilliant. These aren't warm words, but rather a reflection of the initiatives and individual actions I have seen across our businesses and global locations to support colleagues and celebrate diversity. I get pumped up every day. Not only are we making a difference directly in markets, providing you better prices and lower costs which helps the overall economy – but equally as important is that we're making a difference to all those who work and want to work in our industry. In terms of CurveGlobal Markets – we've had a pretty strong run recently.
- Total OI figures up around 100% since 1 October when we went fee-free
- GBP OI up over 200% when notionally adjusted
- Record volumes in Q1 2021 (our best quarter ever)
- Massive blocks and an increased number of them (60% more so far in 2021 than the whole of 2020)
- More market participants joining, see BNP Paribas announcement here
Illustrations – Left: Markets Quarterly Volumes, Right: Markets GBP Open Interest
So, what next for us – well we're super excited to be building open interest and volumes in the sterling market and the SONIA product. GBP OI is up over 200% on a notional basis since 1 October and SONIA volumes counted for 40% of our GBP Futures complex in April, compared to 13% last October. As you may have seen I wrote about the importance of this infrastructure and the leadership of the official sector here. We've also officially announced when we're "switching" LIBOR for SONIA futures at the ISDA/Bloomberg fall back price in December here.
More generally in the sterling market:
- Swaps volumes and risk – massive increase
- SONIA Futures volumes across all markets – liquidity is still not as good as LIBOR based sterling with some strategy volumes on screen and some blocking going on
- SONIA Options volumes – very muted
Anecdotally, we're hearing from option players they're super concerned with the liquidity of both underlying SONIA futures and their respective options as, at writing, less than 3% of the option expires are post the cessation date and the volume and OI in SONIA options is muted compared to the total market. This seems to play to CurveGlobal and LCH's market users as the futures and swaps trading together seems to be highly relevant. We're quite excited by this, clearly, as CurveGlobal Markets is the only place you can trade a SONIA future and swap (GBP or other currency!) and have a margin offset at LCH.
I've no doubt that over time the options will grow in importance and liquidity, to that end, the official sector is pushing the next "SONIA first" where it is due to become the default reference price in non-linear derivatives from 11 May. I also have no doubt that the official sector will continue its great work and push for more trading on listed derivatives in futures on SONIA – perhaps after the June expiry to switch the volume from "synthetic" SONIA (or as it's more commonly known – short sterling less 11.93 spread) to SONIA futures.
