Swaption brokerage

Dear swaption traders, could you please shed some light on how brokerage is calculated in this asset class? I am getting different answers from various sources. Some say it is based on swap notional (e.g. 0.0025 bps) while others reckon it is based on vega. The second one does not make a lot of sense, as a low delta swaption would have a lot less brokerage than ATM swaptions. Thanks for your insights.

 

It depends and there is no single answer...

 

Thanks Martinghoul. What are the most common ways, and could you share an example or two? Cheers.

 

I'm not familiar with Swaption. What are they and are they OTC or listed products?

 

I assume it’s sell-side IDB? My dated experience it’s per notional usually, with some bookies charging per-vega on longer dated stuff like 10y10y and per notional on shorter dates. Some would try to switch it mid-trade

 

OTC. It is still a relatively opaque market, not a lot I can find that is publicly available. For the purpose of this discussion we can narrow it down to USD or EUR interest rate swaptions.

 

Thanks sle, that is very helpful.

 

IMHO, for must ATM or close to ATM strikes, it's per vega. For OTM, there are no rules and will depend on the dealer's inventory. Generally, I am not even sure "brokerage" is the right term.

 

Sorry, I just realized I was being a numpty... I was thinking about bid/offer, while the OP was asking about bro specifically.

I would agree with sle, bro is a function of either notional or vega, but predominantly notional, AFAIK.