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Here is what is happening to derivatives market liquidity right now

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  • The price of liquidity in USD swaps has risen in 2021 relative to 2020 when measured by Price Dispersion.
  • However, USD Swap markets saw huge volumes traded during February 2021, showing that liquidity has still been available.
  • Our analysis shows that the price of liquidity has increased as volatility increased.

Everyone is talking about the bond market sell-off

I noticed this on Bloomberg this week, and therefore revisited our own analysis on liquidity in USD swaps.

Bloomberg look at bid/offer spreads in US Treasuries. Our analysis instead uses post-trade transparency data to estimate the Price Dispersion each day. This represents the volume-weighted average difference of each trade to the day’s VWAP. The theory being that as liquidity tightens, the price dispersion goes up. Trading becomes less continuous, more sporadic and at a larger here, and Butterflies and Switches here.” class=”glossaryLink ” target=”_blank”>spread of prices. Another way of saying this is that volumes alone give an indication as to the availability of liquidity whilst price dispersion measures the price of this liquidity.

Let’s see what the 2021 data shows this time.

Liquidity in USSW10 during 2021

The chart below shows the price dispersion (aka the Clarus liquidity proxy!) every day in 2021 for 10 year USD swaps:

Showing;

  • Every day saw price dispersion below 0.1 basis points.
  • There are some outlier days, such as the 24th January, which saw the highest price dispersion (i.e. the most “expensive” liquidity conditions) of the year at 0.09 basis points.
  • When yields spiked, to 1.6% on 10Y USTs, during volatile markets on 25th February, we also saw elevated price dispersion in swaps. Price Dispersion jumped to 0.05 basis points in what can best be described as choppy trading!
  • However, the average daily price dispersion in January was 0.03 basis points. The average daily price dispersion in February was….also 0.03 basis points!
  • From a perspective of actual trades transacted, it is therefore hard to argue that the price of liquidity/liquidity conditions have seen a fundamental change since the beginning of the year.

Comparing 2021 to 2020

  • For reference, when we ran the identical analysis for the first half of 2020, we saw a clear jump in Price Dispersion during the March 2020 “pandemic volatility“:

Comparing H1 2020 to 2021 so far, it looks like Price Dispersion has increased. For example, the average Price Dispersion in June 2020 was just 0.01 basis points. In the worst week of March 2020, this jumped to 0.06 basis points.

Comparing the two charts suggests that the price of liquidity for ten year USD Swaps is now higher in 2021 than it was for most of 2020.

One to monitor, particularly in light of today’s FT article on UST liquidity:

https://www.ft.com/content/1deec2b3-59d4-4f90-b752-fefd2a88b5b2

Volumes in USD Swaps

One may assume that tighter/more expensive liquidity conditions leads to reduced volumes in USD Swaps. Of course, countering this is the sheer size of the sell-off we’ve seen this year, leading to a lot of repositioning (volatility always leads to increased volumes).

But first, a health warning! Analysing SDR volume records is complicated in 2021 because:

  • Some FRA trading, even in USD, has now transitioned to Single Period Swaps. This means that we see more short-dated swaps being reported to SDRs (less than one year, and mainly 3M tenors).
  • This distorts volume data when looked at in notional terms.
  • The same is true for here.” class=”glossaryLink ” target=”_blank”>SEF trading.
  • You therefore need to analyse volumes in DV01 terms. This is exactly what our Clarus data tools offer you.

Therefore, we present volumes in USD Swaps in the SDRs expressed in DV01 terms:

$ millions DV01 USD Swaps reported to SDRs per month

Showing;

  • February 2021 saw the largest volumes of USD Swaps reported to SDRs since the March turmoil last year.
  • This makes February 2021 one of the largest volume months we’ve seen on record.
  • Based on capped notional amounts, $1.76bn of DV01 traded.
  • However, volumes in February 2021 were still 30% lower than March 2020.

We also saw a lot of blog, which identifies D2C block trades in the public data.” class=”glossaryLink ” target=”_blank”>block trades last month, with 3,904 capped notional trades reported, again the highest since last March. However, looking at uncapped DV01 traded from sefview.clarusft.com.” class=”glossaryLink ” target=”_blank”>SEFView, we still see that February 2021 fell about 28% short of the March 2020 records in USD swaps:

DV01 traded on-SEF in USD Swaps per month ($ millions)

No matter, February 2021 will still go down as a huge volume month in USD swaps.

The Price of Liquidity and Execution Conditions in Swaps

As we concluded last year (see here and here) post-trade analysis of execution conditions shows that:

  1. Record volumes are consistently seen when market conditions are volatile and price dispersion measures head higher.
  2. Liquidity is still available when markets are volatile.
  3. As volatility increases the price of liquidity increases.

Simply put, market participants must pay a higher price for liquidity when markets are volatile. That seems fair to me.

In Summary

  • Post-trade analysis suggests that the price of liquidity in USD swaps has increased in 2021 relative to 2020.
  • Average monthly price dispersion has increased since H1 2020 from 0.01 basis points to 0.03 points in February 2021.
  • When yields spiked on February 25th, Price Dispersion jumped to 0.05 basis points.
  • Despite this, USD swap markets have seen extremely elevated volumes.
  • Assessing execution conditions, we can state that the price of liquidity increases as volatility increases.

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Source: https://www.clarusft.com/here-is-what-is-happening-to-derivatives-market-liquidity-right-now/?utm_source=rss&utm_medium=rss&utm_campaign=here-is-what-is-happening-to-derivatives-market-liquidity-right-now

Fintech

MoneyMe accelerates lending and revenue

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MoneyMe outperforms originations run rate with $108m originations, revenue of $15m and exceeds $230m in gross loan receivables with strong loan unit economics.

Clayton Howes, Managing Director and CEO of MME said, “We are incredibly pleased to report the growth and momentum the business is achieving, with increasing revenues and another set of records in originations and customer receivables. Our business is accelerating with the credit quality of our customers increasing and it is fantastic to see the strong take-up of our recently launched products by our customers and merchants. Another great quarter for the business as it delivers on its strategy to build returns through innovation, scale and technology.”

Record Originations & Gross Customer Receivables 

MoneyMe’s originations in Q3 FY21 of $108m, ($51m, Q3 FY20), reflects continued acceleration in originations growth of 57% on Q2 FY21, beating a previous record ($69m). Gross customer receivables of $233m, up 63% on pcp ($143m, Q3 FY20) with growth from the existing Personal Loan and Freestyle products as well as the momentum from the more recently added MoneyMe+ and ListReady products.

The accelerated growth contrasts to relative flat growth within the consumer credit market, reflecting the Group’s ability to attract customers from incumbent consumer credit providers with its Generation Now suite of offers.

Record Revenue & Increasing Returns 

Q3 FY21 revenue was $15m ($12m, Q2 FY21) with Q4 FY21 contracted revenue increasing to over $19m. Returns are robust with revenue yield at 29% (32%, 1H FY21) and the average receivable term increased to 35 months (32 months, Q2 FY21).

Increasing operating leverage and cost efficiencies

Funding costs to Q3 FY21 reduced to 6% (9%, 1H FY21) as the Group continues to leverage its bank warehouse facility. The Group is confident in its funding program to support the growth with an unrestricted cash balance of above $11m at 13 April 2021. The Group achieved a further reduction in its core operating costs margin6 to 9% in Q3 FY21 (12%, 1H FY21).

FY21 Gross customer receivables are expected to exceed $265m ($133m FY20).

Strong Credit & Book Quality 

The Group is continuing to deliver strong credit book quality with the average Equifax score increasing further to 644 in Q3 FY21 (638, Q2 FY21). COVID-19 hardship payment plan deferrals continue to be insignificant, reducing to 0.1% of gross receivables at Q3 FY21 (0.4% at 1H FY21). Q3 FY21 net charge-offs were stable at 4% (4%, Q2 FY21).

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Source: https://australianfintech.com.au/moneyme-accelerates-lending-and-revenue/

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How Bizcap helped to fund fitness

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‘Pivoting’ may have been the buzzword of COVID-19, but it’s exactly what Anthony from A1 Fitness Supplies in Victoria did – with the help of some cashflow capital from Bizcap.

COVID-19 threw the world into chaos – many of us were working from home, the tourism industry was on its knees, hospitality was at the mercy of square-metre rules, and the fitness sector was pivoting left, right and centre with gym closures and restrictions on class sizes.

For A1 Fitness Supplies, which provides commercial-grade equipment to gyms across Australia, COVID could have spelled disaster.

Rather than shrugging his shoulders in disappointment, owner Anthony Scarcella spotted a business opportunity – however, he needed to find some capital to make it happen.

Commercial-grade equipment at home

For people who are accustomed to working out at a gym, traditional domestic gym equipment just won’t cut it.

“Everybody training at the gym is used to training on at least light commercial, semi-commercial or full commercial units. They’re not going to go from squatting from a full-power cage in a gym to a full domestic unit, which is probably going to bend and flex due to what they’re used to lifting in the gym,” Anthony explains.

Consequently, Anthony decided to bring light commercial-grade equipment to domestic customers. The challenge was financing the purchase of stock.

That’s where Bruno Lima, his Bizcap customer Loan Specialist stepped in.

“I gave Bizcap a call and spoke to Bruno – he did a couple of calculations and came back with an offer the same day,” Anthony explains.

Since his first cashflow loan in May, Anthony has returned to Bizcap a further two times, securing a total of $75,000 to invest into his business.

“In total, we ordered 16 containers out of China and only half of them have managed to arrive. So there’s another eight still to arrive, and they will be spread out between February, March and April.”

Quick funding enables A1 to seize the opportunity

For Anthony, working with Bizcap was a great experience that enabled him to quickly access the funds he needed to take advantage of the opportunity that presented itself.

“I find [Bizcap] far easier to deal with than traditional banks, and the funds come in a lot quicker, which means I’m able to get my stock in a lot quicker, I’m able to service my customers as quick as I possibly can if COVID doesn’t interrupt or disrupt, and I’m able to get my turnover in.”

While gyms have reopened, people have still become accustomed to working out at home.

“It looks like we need to do another two orders of full containers, so that’s going to spread out to May, June, July. Our year’s already solid,” Anthony says.

Thanks to the investment Bizcap provided, Anthony was able to maximise the opportunity.

“We needed to act quickly, and Bizcap helped with that,” he says. “The paperwork is minimal – and, in business, time is money.

“As a result, we were able to triple our turnover.”

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Source: https://australianfintech.com.au/how-bizcap-helped-to-fund-fitness/

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HashChing acquires Mystro to further expand its offering to mortgage brokers

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Australia’s leading mortgage broker platform HashChing today announced it has acquired document automation and data collection company Mystro. The acquisition follows a successful period of growth for HashChing and will help to expand its service offering to mortgage brokers.

Whilst a booming property market is predicted to continue in 2021, there is also significant consolidation in the mortgage broking market with a broader shift to online/digital channels, due to the global pandemic. This is presenting a considerable challenge to mortgage brokers who need to compete with both direct bank and non-bank lenders as well as other brokers, all whilst having significantly fewer resources to spend on marketing and sales technology.

Over 1,500 mortgage brokers across Australia already utilise Mystro to streamline their document management, client data collection and loan applications. For the 2021 financial year, Mystro has processed $28 billion in loan applications. The strategic acquisition announced today will allow many more to take advantage of both technology platforms and help level the playing field for independent brokers.

CEO of HashChing Arun Maharaj said the company was committed to providing the best possible resources for brokers to be successful, and the acquisition was the natural next step in this process.

“As Australia’s leading mortgage broker and digital loans platform, we are thrilled with the opportunity that this acquisition will bring to mortgage brokers. It’s our mission to help brokers deliver great customer experiences, and we know from our conversations that they’re busier than ever before. The way they interact with customers has drastically changed over the past 12 months, and digital productivity is a big part of broker success. That’s one of the key reasons why HashChing has acquired Mystro – its laser focus on eliminating repetitive tasks and streamlining digital processes is a perfect fit with HashChing’s mission to give brokers a one-stop-shop tool for productivity and profit.”

“With the industry changing at a rapid pace, HashChing has been quick to implement strategies and provide the necessary resources for mortgage professionals to resume business as usual. At our core, we offer choice; choice to our borrowers to access better deals, and choice to our brokers to engage with clients through technology and to diversify their income in the most productive way for them. I’m very much looking forward to working with the team at Mystro to make this a successful operation for all involved,” said Mr Maharaj.

Dmitry Chourpo, Founder of Mystro, said, “We developed Mystro to eliminate manual, repetitive tasks and help our customers focus more of their time and energy on what really matters. Through this acquisition, Mystro will retain the industry-leading team and brand but will now also be able to utilise the resources of the HashChing team, who share our vision in supporting brokers and look forward to creating a seamless, innovative broker platform together.”

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Source: https://australianfintech.com.au/hashching-acquires-mystro-to-further-expand-its-offering-to-mortgage-brokers/

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Fintech offers brokers better commissions after BID

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Nodifi, one of the rising names in the asset finance space, are to offer a new bespoke product for brokers that can help them to navigate the new Best Interests Duty (BID) regulations that have been in force since the start of 2021.

It represents a concerted effort to bring brokers back to asset finance after many departed the space due to the new rules, which reduced commissions for brokers and dissuaded many from engaging with consumer-facing asset work.

“It allows brokers to set fixed rates for consumer asset finance,” said Alex Ventura of Nodifi of the new product. “The reason that they might want to do that is because of the new BID regulations: when they were introduced, it meant that brokers had to dial down rates to the base rates as that is in the best interest of the consumers. When they do that, they don’t earn a commission on it.”

“There has been a big grey area around consumer asset finance so to overcome that, we’ve introduced a new update to the platform that has set fixed rates so brokers don’t have to worry about it because the commission is already inclusive in what that has been dialled up to. That’s the main benefit.”

To read more, please click on the link below…

Source: Fintech offers brokers better commissions after BID

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Source: https://australianfintech.com.au/fintech-offers-brokers-better-commissions-after-bid/

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