TriOptima, ICAP’s post-trade risk management infrastructure division, has announced today that it has resumed its triReduce compression cycles within LCH.Clearnet’s SwapClear service, eliminating $16 trillion in notional principal with one EUR and one USD interest rate swap cycle during the last month of 2013. This latest figure brings the cumulative total of notional compressed by TriOptima and SwapClear to $204 trillion.
Utilizing the triReduce service, members are able to pull apart their existing trades at their own mid mark-to-market valuations so the negotiation of a bilateral termination is redundant and the number of eliminated trades increases. TriOptima has been offering this service since 2003 and is now available in 25 currencies with around 180 regional and global institutions participating worldwide.
The importance of multilateral interest rates swaps compression for the Forex industry is that it reduces the overall costs of interbank multi-currency transfers required to settle trades between different trading desks. This process has made a considerable impact in reducing fees which in turn has led to tighter FX spreads over the last three years.
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TriOptima stated in the announcement that with the resumption of triReduce multilateral compression in December 2013, 33 SwapClear clearing members reduced their gross notional outstandings by almost $43 trillion last year. Lower gross notional exposure contributes to bringing an institution’s leverage ratio in line with regulatory expectations, important in today’s world. Trade compression cycles also help ensure post-trade efficiency. Running regular cycles in a range of currencies reduces both the gross notional and the number of outstanding OTC derivative transactions in the Clearing House.
Peter Weibel, the CEO of triReduce, commented in the announcement: “We know there is strong interest from customers to eliminate as much gross notional exposure as possible in the Clearing House, and we have collaborated with LCH.Clearnet’s SwapClear service and its clearing members to develop an ambitious compression schedule for 2014.”
Daniel Maguire, head of LCH.Clearnet SwapClear US added: “Our clearing members are under increasing pressure to reduce notional outstanding due to the emerging capital rules on derivatives, and the reintroduction of the triReduce compression service within SwapClear is therefore a key component of our offering.”