Interest in post trade risk mitigation services grows in Asia, according to TriOptima whitepaper
10 May 2016
Hong Kong, Singapore, 10 May, 2016, TriOptima, the award-winning post trade infrastructure provider, has published a whitepaper today entitled “Post Trade Risk Mitigation in Asia”. The whitepaper claims that adoption of post trade initiatives in the region are growing and provides a summary of clearing requirements and the OTC derivatives landscape in the Asia Pacific region.
Unlike Europe and the US, there lacks a single regulatory regime or universally accepted best practices criteria for OTC derivative post trade activities in Asia. While most Asian countries maintain independent national regulatory regimes, there has been a recent move by many Asian countries to adhere to the G20 Principles and comply with global standards articulated by the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO) committee.
“Major markets such as Australia, Hong Kong, Japan and Singapore are leading the way in adopting post trade services to mitigate counterparty credit risk, reduce operational risk and control capital charges”, said Yutaka Imanishi, CEO of Asia Pacific, TriOptima. “In these countries clearing, portfolio compression and portfolio reconciliation are widely employed and successful.”
15% of trades transacted in the global OTC derivatives market, take place in Asia. Close to 70% of these are now cleared either in national clearing houses or in LCH SwapClear. Asian markets have seen rapid implementation of clearing rules and CCP’s over the past few years. The introduction of portfolio compression; the process of reducing outstanding transactions to reduce capital charges, operational costs and compliance with the Basel III leverage ratios, has been a key development within the post trade risk mitigation arena. Since 2004, more than 70 Asian market participants have participated in TriOptima’s triReduce multi-lateral compression rounds for both cleared and uncleared interest rate and CDS swaps, a figure set to grow in 2016 when triReduce expands its currencies and supports new product types such as NDFs.
The post trade practice of portfolio reconciliation, whereby the portfolios of multiple companies are reconciled post transaction to check for valuation and submission errors, has been steadily growing in Asia since it was first adopted in Europe and the US. 107 of the 1,500 global institutions using TriOptima’s triResolve portfolio reconciliation service are now based in Asia, with adoption particularly strong in Australia, Hong Kong, Japan, and Singapore and users in China, India, Korea, Malaysia, New Zealand, the Philippines and Taiwan.
The rise of portfolio reconciliation in Asia has been driven by pressure from counterparties in Europe and the US mandated by their regulators to reconcile portfolios. This interest has been accelerated in anticipation of the new margin rules that will take effect in 2016-2017 as margining relies on portfolio reconciliation for accurate calculations.
In line with G20 objectives to make the OTC derivatives market more transparent, Asian regulators including: the Australia Securities and Investment Commission (ASIC), the Hong Kong Monetary Authority (HKMA), and the Monetary Authority of Singapore (MAS) have begun to implement transaction reporting to a swap data repository similar to their Europe and US counterparts. These regulators are yet to report problems of low data quality as has been experienced in Europe and the US, but as reporting by different counterparties or their designated agents takes hold, it is anticipated that the same issues will arise in Asia.
To resolve trade data reporting problems and ensure accuracy to meet regulatory requirements, triResolve Repository Reconciliation was developed by TriOptima in 2014. 20 institutions in Asia are now using this service.
Despite the increased interest in post trade and risk mitigation services in Asia, further adoption has been hampered by the perception that to deliver these services requires additional human, financial and IT resources. As such, it is up to service providers such as TriOptima, to educate regional players on the value of efficient risk management practices, help them implement these services into their workflow and take adoption to the next level.
Mr Imanishi said: “There is room for improvement in the adoption of post trade risk mitigation services such as those offered by TriOptima in Asia. Local regulators continue to evolve their individual regulatory frameworks to conform with BCBS/IOSCO standards. In time, we anticipate that clearing, portfolio reconciliation, repository reconciliation and compression will become business as usual for most companies within Asia.”
TriOptima is the award-winning provider of post trade risk management services and infrastructure for OTC derivatives. Focused on reducing costs, eliminating operational and credit risk, improving counterparty exposure management, and reducing systemic risk, TriOptima offers a range of services: triReduce to reduce swap inventory and counterparty risk; triResolve to reconcile OTC derivative portfolios, manage disputes, validate repository data, and deliver an automated margin management solution; triBalance to manage cleared and bilateral counterparty risk; and triCalculate to measure and analyze counterparty risk.
TriOptima, an ICAP Group company, maintains offices in London, New York, Singapore, Stockholm, and Tokyo. http://www.trioptima.com