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April 25, 2013

Cleared Swap Prices versus Bi-lateral Swaps

Last month, I posted a blog titled "Analysis of Pricing of Cleared and Un-Cleared Swaps from the US DTCC SDR". Today I would like to make a correction in one of the interesting insights I noted in that blog. Namely the point that the "The price differences between UnCleared and Cleared Swaps can be observed and is sizeable" and I went on to note that this was 32 bps (!) for 5Y Swaps, which while surprising, I put down to higher credit risk, capital and funding cost. This is in-fact wrong. Prompted by two things; first enhancements to our DDR view and secondly the recent articles in the press on the error found in an Excel workbook used by Reinhart and Rogoff for a prominent research paper, I decided to re-check this finding. In-fact there is less than 1 basis point difference in prices of USD 5Y Libor 3M Uncleared and Cleared Swaps. For further details of the analysis, click here – Amir K


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