ISDA published a research note titled Cross-Border Fragmentation of Global Interest Rate Derivatives: The New Normal? The research note is the fourth in a series that charts the changes in global liquidity pools since the U.S. swap execution facility (“SEF”) rules were implemented in October of 2013.
Significantly, the report found that the new rules have contributed to the separation of trading between U.S. and European markets with respect to European interest rate swaps. According to the report, before the implementation of U.S. SEF rules, approximately twenty-five percent of euro interest rate swaps (“IRS”) activity was composed of trades between European and U.S. dealers. Currently, that percentage is down to about ten percent.
Lofchie Comment: Evidence of the damage done to the United States as a global financial center by various Dodd-Frank rules is mounting. SEF rules in particular do not reduce systemic risk. To the extent to which these rules actually serve to separate markets and reduce global liquidity, their consequences are the opposite of their intended purpose.