Tag: OTC risk premia

OTC risk premia

Want to Trade an Uncleared IRS? That’ll be 8bp

A new staff working paper from the Bank of England finds that clients trading interest rate swaps in an uncleared environment are paying around eight basis points for the privilege.
The paper uses data from trade repositories to study trading and pricing patterns in IRS markets and finds the risk premia attached to, and therefore the pricing of, IRS trades varies greatly. The price differentials in risk premia are, “highly significant in statistical and economic terms,” the paper states. This premium substantially decreases when initial margin is posted and with the client’s creditworthiness.