Influence Of Centralized Clearing On RMB IRS Pricing

From July 1st,2014 the Shanghai Clearing House began to implement the mandatory centralized clearing of OTC financial derivatives,the first centralized clearing products was the RMB interest rate swap.The RMB interest rate swap centralized clearing business would cover all market participants.Wether the central clearing will change the RMB interest rate swap pricing or not is a measure to know the essence of influence of centralized clearing on RMB interest rate swap market,which can also reflect the an important meaning of the policy.This paper firstly expounds background of the Establishment of our country’s interest rate swap market and its basic situation.And then introduces development process of the centralized clearing of RMB interest rate swap,followed analyzing RMB interest rate swap market’s operation status by the size of the transaction,the reference rate,the term structure,the number traders.Finally summarizes the inadequacies of RMB interest rate swap market in market liquidity,pricing mechanism and so on.In the next part I analyzes the characteristics of interest rate swap spread before and after centralized clearing.The spreads of interest rate swap based on repo rate has the following characteristics: before mandatory centralized clearing,interest rate swap price fluctuatesd more strongly;bid-ask spreads of different period of interest rate swaps based on repo rate are obviously not zero;before and after mandatory centralized clearing,China’s interest rate swaps’ bid-ask spreads did not change significantly;term premiums of each term of the interest rate swap are not significant to zero,and the longer duration of the interest rate swap,the more term premium in general.Before and after the mandatory centralized clearing,the term premium of interest rate swaps did not change significantly.The behavior characteristics of spread of Shibor3 M interest rate swap is the same as the repo rate interest rate swap,but spread of Shibor3 M interest rate swap is significantly higher than FR007 interest rate swap spread.Finally,I focus on the analysis of the effect of centralized clearing on the pricing of RMB interest rate swap through empirical analysis.This paper selects the MS-VAR model for empirical analysis,and the analysis results show that both for the pricing of long-term interest rate swap and short-term interest rate swaps,centralized clearing will reduce the interest rate swap price.That is to say,after the implementation of centralized clearing system,the RMB interest rate swap price declines when other factors are the same.At the same time,this paper also analyzes the influence factors of different maturities interest rates swap pricing: for the short-term interest rate swap,its pricing is mainly affected by the factor of liquidity and credit risk;and for the long-term interest rate swap terms,the pricing is mainly affected by the credit risk.