The Future of Financial Analytics



The Cost of Clearing: A Buy-Side Investigation

How does clearing affect alpha? How will central clearing affect performance?

Questions along these lines are heard time and again in buy-side events, but answers are harder to find. Sapient Global Markets embarked on an in-depth study to get some answers, leveraging FINCAD technology to compare the effects of various clearing methods. The results - and answers - are available in the white paper The Cost of Clearing: A Buy-Side Investigation.


Sapient Gobal Markets developed, ran and compiled the study. It measured the portfolio performance of a fixed income fund hedged under four different methods: pre-crisis uncleared swaps, post-crisis uncleared swaps (using BCBS/IOSCO guidelines), swaps cleared through LCH.Clearnet SwapClear and Eris Standard swap-futures (cleared via the CME).

It won’t shock anyone to hear that there is significant drag on portfolio returns when comparing the pre-crisis environment with centrally cleared models and again with uncleared models under the new regulatory environment. It might come as a surprise, though, to see just how different the variance was between the models.

The findings will help buy-side firms evaluate their clearing strategies and better understand the impacts of central clearing on their business.