June 4, 2013

Mandatory Clearing: Predictions and the Wisdom of Crowds

Yesterday was the end of our competition to predict the impact of the Dodd-Frank Act mandatory clearing deadline of June 10th. The question we posed was the following:

What do you predict will be the gross notional remaining of Uncleared USD IR Swaps FixedFloat in the week of 10th – 14th June 2013, as reported to the USD Swaps Data Repository (DDR)?

Now all the entries are in, I wanted to provide a summary of these and put to test the well known maxim; the wisdom of crowds (or the many are smarter than the few).

The entries we received ranged from $12 billion to $100 billion.

Using the tried and tested method of throwing away the lowest and highest and averaging the remaining, we come up with a consensus prediction of $36.7 billion.

For each of the previous 6 weeks, the weekly uncleared notional, starting with the earliest was $39b, $48b, $40b,$57b, $52b, $66b. Which as an average over the period is $50.5 billion.

Prior 6 weeks - Uncleared Swaps

So we can say that our consensus prediction is a drop of $14 billion or 27% and a commensurate increase in Cleared Swap volumes. This means that we expect daily uncleared usd swap volumes fall to around $7 billion from their trailing six-week  daily average of $10.5 billion, or in trade count terms a reduction from 275 to 180 trades each day that remain uncleared.

Well that is it for our prediction. We plan to announce the actual result on June 17th.

Good luck to all the entrants and here’s betting on the wisdom of crowds.

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