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March 21, 2013

Moving on from LIBOR | SwapClear Settlement Prices | Ben Larah – Sapient

Earlier this week, LCH.Clearnet SwapClear started to publish daily settlement rates for key interbank/OIS swap rates in seventeen different currencies (see this post). This has been perceived as a significant step towards transparency in the OTC swap markets, as IR swap rates which were previously quoted bilaterally between market participants are now publically available for firms to mark their books to published closing swap rates. Publishing benchmark IR swap rates is by no means a new initiative. ISDAFIX has been calculating and publishing composite IR swap rates for the settlement of swaptions, early-terminating swaps and CMS products since 1998, and ISDAFIX now covers the term structure of eight different types of swap across six currencies. However, there is a distinct difference between the way in which ISDAFIX and SwapClear rates are derived. ISDAFIX rates are polled twice-daily from a group of market participants, whereas SwapClear rates are derived from actual executed trades settled in the clearinghouse. The LIBOR scandal of 2012 has significantly undermined public confidence in the quality of benchmark rates based on surveys of swap dealers, and therefore the availability of benchmarks based on actual prices is likely to be met with public and regulatory approval. Ben Larah, Manager, Sapient Global Markets. Profile: https://www.linkedin.com/pub/ben-larah/33/ab0/7a7 UPDATE March 22nd: "whereas SwapClear rates are based on quoted prices." changed to "whereas SwapClear rates are derived from actual executed trades settled in the clearinghouse." above.


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