June 4, 2013
Cost of Clearing | New Study
A new Sapient Global Markets study analyses the costs of clearing due to mandatory central-clearing through CCPs. The study measures the impact of centrally-clearing hedge derivatives on buy-side portfolio performance, in terms of the alpha drag on returns. "Alpha drag" is defined as the difference in cumulative returns (since inception) between hedging the modified duration (MD) of a bond-portfolio using bilateral IR swaps in a pre-2008 environment, and hedging the MD of a bond portfolio in a post-Dodd Frank, centrally-cleared environment over a range of post-Dodd Frank back tests. Those back tests are:
- Hedging using IR swaps cleared through LCH.Clearnet SwapClear
- Hedging using Eris Standard IR swap-futures cleared through CME
- Hedging using bilateral IR swaps in a proposed BCBS/IOSCO environment (set to come into effect over 2015)
The press release is printed on the WSJ website here. A copy of the study itself can be accessed from here.