On Thursday and Friday, Marc was presenting a workshop on “multi-curve and collateral framework and IBOR transition”.
Among the slides presented was this one:
This is a back-of-envelop computation of IM funding cost (Margin Value Adjustment - MLA) to take advantage of the CCP basis. This computation leads to a 1.5 bps annualized at each CCP, i.e. 3.0 bps total. The slide was presented with a graph of the recent LCH-EUREX basis in EUR done a couple of days before and showing the peak at 4 bps for the 10 year.
The same day that the slide was presented, the following article was published in Risk:
This shows that the basis, which looks like an arbitrage, is very difficult to monetize, that 4 bps may not be a strong anomaly but just a feature of the market and that constraints on the market by regulators may have unintended, but not unexpected consequences.
Don't hesitate to contact us if you are interested by independent advise related to market infrastructures, initial margins and interest rate markets.