News: Cost of Clearing | New Study

04 June 2013 | Ben Larah

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:

  1. Hedging using IR swaps cleared through LCH.Clearnet SwapClear
  2. Hedging using Eris Standard IR swap-futures cleared through CME
  3. 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.  



Click here to register your place for the webinar, the original post regarding the study on OTC Space ishere

Reblogged this on Carl A R Weir's Blog.

into effect for Tier 2 firms on 10 June, 2013. The impact on such firms will include a significant drag on returns for their portfolios, if they are engaged in hedging strategies using cleared

was interviewed last week by TABB TV about Sapients Cost of Clearing study. A link to the video is