Article: Cleared Swap Prices versus Bi-lateral Swaps

25 April 2013 | Amir Khwaja

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


CME ticker here is still showing nothing for Credit or Rates even though they are clearing trades. On the other hand uncleared FX swaps are showing in thousands (and a few commodities). Anyone able to explain this phenom?

Yes, I guess not that many USD 5Y Libor 3M Bi-lateral trades reported on April 23 to DDR (only 11 Bilateral and 56 Cleared ), so may not be statistically sound conclusion. Eyeballing April 24 prices, shows 2 bps difference for the last traded Bi-lateral and Cleared Swaps.There is no field in the DDR files to signify the CCP.Though someone did say to me that these were only LCH Cleared trades and the CME ones were in the CME SDR. Need to double check this.We are considering also feeding in the CME SDR Rates file, but last time I checked the CME Repository site, I could not get any trades other than for 19-March.

That is a surprising small differential. Of equal interest would be cleared prices between CCPs?