Cross-Border Fragmentation of Global OTC Derivatives: An Empirical Analysis

In December 2013, ISDA published "Footnote 88 and Market Fragmentation: An ISDA Survey" (see December 18, 2013 on this page). The Survey’s findings revealed that the October 2, 2013 effective date for Swap Execution Facility (SEF) compliance, the definition of a US person and the Footnote 88 interpretation are clearly having a disruptive impact on OTC derivative trading volumes. Market participants reported that cross-border liquidity has fragmented along US person and non-US person lines. In January, ISDA completed this new analysis that builds on our earlier work and aims to empirically characterize the composition of and changes to cross-border pools of liquidity following the October implementation date. To accomplish this, we use monthly 2013 clearing and reporting data for US dollar and Euro interest rate swaps (IRS) for our use-case.

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