TriOptima and LCH.Clearnet terminate JPY interest rate swaps with notional principal value of JPY 83.3 trillion
05 October 2011
TriOptima and LCH.Clearnet terminate JPY interest rate swaps with notional principal value of JPY 83.3 trillion;
Support G-14 efforts to comply with compression commitments
TriOptima and LCH.Clearnet Limited (LCH.Clearnet) have announced that the first JPY-denominated interest rate swaps (IRS) have been torn up by SwapClear members. The triReduce termination cycle terminated JPY 83.3 trillion notional principal ($1.1 trillion) from LCH.Clearnet’s SwapClear service.
In their commitment letter to the banking supervisors dated March 31st, the G-14 signatories committed to extending termination efforts in the major CCP to additional major currencies such as JPY. With this termination cycle, TriOptima and LCH.Clearnet have now eliminated cleared interest rate swap trades in USD, EUR, GBP, and JPY totaling $67.4 trillion in notional principal.
By eliminating risk neutral trades, which averaged 9 years to maturity, from SwapClear, the six institutions that participated in the cycle have facilitated systems processing by increasing operational efficiency and reducing potential administrative exposure in the event of a default.
To date, $67.4 trillion of cleared transactions have been removed through multilateral trade compression, representing approximately 20% of the notional value of IRS transactions within SwapClear. Additional cycles in EUR, USD, GBP, CHF and JPY are planned for 2011. In April, SwapClear replaced its systems to provide enhanced risk management capabilities and enabling the termination process to be faster, more straightforward and more secure.
”We are pleased that we could assist the G-14 institutions in fulfilling their commitment to the banking supervisors to eliminate cleared swaps in currencies like the JPY,” said Yutaka Imanishi, CEO of TriOptima Asia Pacific. “Working with LCH.Clearnet SwapClear and the clearing house members, we are able to extend even further the triReduce service in the clearinghouse environment and contribute to a more robust OTC derivatives marketplace. We anticipate even broader participation in the next JPY cycle.”
Michael Davie, CEO, SwapClear at LCH.Clearnet said: “As clearing of IRS accelerates, running regular termination cycles across a range of currencies drives down both the notional and number of outstanding OTC derivative transactions and is an important factor in achieving the goals proposed by the regulators. Trade compression is essential for ensuring post-trade efficiency. The value of such a service is strengthened as participation increases, and we therefore look forward to the involvement of more counterparties in future tear-ups.”
For further information please contact:
Susan Hinko, Global Head of Industry Relations
Tel: + 1 646 744 0410
Rachael Harper, Corporate Communications
Tel: +44 (0)20 7426 7175
About TriOptima Compression
Compression services are offered through TriOptima’s triReduce service. Utilizing triReduce, participants are able to tear up their existing trades at their own mid mark-to-market valuations avoiding the difficult negotiation process of bilateral termination. Multilateral terminations leverage off the expanded number of participants and result in increased numbers of terminated trades. Eliminating trades eliminates costs, credit and operational risk and reduces capital requirements.
TriOptima, an ICAP Group company, is the award-winning provider of OTC derivatives infrastructure services including triReduce, triResolve, and the Global OTC Derivatives Interest Rate Trade Reporting Repository (the Rates Repository).
triReduce, the portfolio compression service for OTC derivative dealers, pioneers technology that eliminates risk and reduces operational and capital costs. Serving over 150 bank and non-bank subscribers worldwide including the major local and global dealers in derivatives, triReduce is a critical tool for maintaining post trade processing efficiency. triReduce offers compression cycles in single name and index CDS swaps worldwide, IRS swaps in 23 currencies and a range of energy derivatives.
triResolve is a network community service that provides counterparty exposure management services including proactive portfolio reconciliation of OTC derivative portfolios, margin call management, and dispute resolution. Used by global dealers, regional banks and buy-side firms, triResolve currently handles 6 million trades representing over 75% of all non-cleared OTC derivative transactions globally. The service benefits trade control, settlement, documentation, collateral and counterparty credit risk functions.
TriOptima maintains offices in London, New York, Singapore, Stockholm, and Tokyo.
LCH.Clearnet is the leading independent clearing house group, serving major international exchanges and platforms, as well as a range of OTC markets. It clears a broad range of asset classes including: securities, exchange traded derivatives, energy, freight, interbank interest rate swaps and euro and sterling denominated bonds and repos; and works closely with market participants and exchanges to identify and develop clearing services for new asset classes.
A clearing house sits in the middle of a trade, assuming the counterparty risk involved when two parties (or members) trade. When the trade is registered with a clearing house, it becomes the legal counterparty to the trade, ensuring the financial performance; if one of the parties fails, the clearing house steps in. By assuming the counterparty risk, the clearing house underpins many important financial markets, facilitating trading and increasing confidence within the market.
Initial and variation margin (or collateral) is collected from clearing members; should they fail, this margin is used to fulfill their obligations. The amount of margin is decided by the clearing house’s highly experienced risk management teams, who assess a member’s positions and market risk on a daily basis. Both the soundness of the risk management approach and the resilience of its systems have been proven in recent times.
LCH.Clearnet is regulated or overseen by the national securities regulator and/or central bank in each jurisdiction from which it operates.