CCP Basis Swaps

A CCP Basis Swap (also known as a CCP spread or clearing house basis) is a trade strategy that involves the execution of two almost identical but opposing swaps, where the only difference is the difference between the traded fixed rate. That difference is known as the spread or the CCP basis.  One of the swaps will then be cleared on one CCP and the other cleared on another. The CCPs concerned and the direction of the swaps are explicit terms of the pre-trade negotiation.

Reasons for wishing to move exposure from one CCP to another might arise from an imbalance of activity in one venue, for example short rate futures trading cleared on one CCP being hedged with liquid OTC swaps cleared in another CCP.

The CCP Basis can be positive or negative, and it can change over time based on a variety of factors, including changes in supply and demand for the rates of different tenors, changes in the interest rates, changes in funding costs and changes to the cost of clearing and settlement services provided by a CCP. In general, CCP basis is small (close to zero) and not usually very volatile.