MACs Loom Large in Swaps Markets

Terry Flanagan

The Securities Industry and Financial Markets Association’s market agreed coupon (MAC) product, launched in spring 2013, represents the standardization of certain swap contracts.

“Traditional par swaps with on-market rates won’t net or collapse into a single line item at the clearing house, but MAC swaps, by virtue of standardized dates and a fixed, standardized rate, are fungible and will collapse into a single line item at the clearing house,” Elisabeth Kirby, director of rates strategy at Tradeweb, told Markets Media.

Key benefits of MAC swaps revolve around compression and fungibility of contracts, which in turn reduces or eliminates time-consuming unwind processes and market inefficiencies, according to Sifma.

Sifma publishes the MAC coupons for each new IMM date, and the MACs will trade based upon that specified rate for that specified date.

“On Tradeweb’s RFQ-based system, someone who is looking to trade a MAC swap will request prices for that particular contract,” Kirby said. Then any participants who are looking to make a market will quote a cash price, and the parties can then choose to transact based upon agreement of that price.”

Although MACs are only about ten percent of overall volume on Tradeweb’s marketplace, transacting in these types of instruments can be more cyclical than other swap types, so volumes will vary depending on the time of the year.

“We have seen a gradual uptick in this type of trade, but on average we haven’t seen a significant rise above that ten percent mark,” said Kirby. “MAC swap trading has been adopted by a number of different customer types, so it’s not something that’s just unique to hedge funds or asset managers, as we’re seeing customers across the buy-side spectrum choosing to transact in this product.”

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