TriOptima and LCH.Clearnet Compression of Cleared Interest Rate Swaps Exceeds $100 Trillion in Notional; $20.4 Trillion Compressed in 2012 Alone
23 February 2012
TriOptima and LCH.Clearnet Limited (LCH.Clearnet) today announced that $110 trillion in total notional volume in EUR, JPY, GBP and USD interest rate swaps has been terminated by 21 SwapClear members using TriOptima’s triReduce service since the first cycle in 2008. In 2012 alone, $20.4 trillion has been eliminated, accelerating a trend to larger and more frequent termination cycles.
Compression of cleared trades fulfills existing commitments to international banking regulators and also anticipates a final CFTC Core Principle Risk Management rule requiring a clearing organization to offer compression to swap dealers and major swap participants.
Terminating risk-neutral trades in SwapClear contributes to reducing systemic risk and facilitates systems processing by increasing operational efficiency and reducing potential administrative exposure in the event of a default. Through this process, more than 950,000 transactions have been completely terminated within SwapClear.
"We are pleased that we have seen renewed focus on eliminating cleared swaps among SwapClear member banks," said Peter Weibel, triReduce CEO. "As highlighted by ISDA’s paper on the progress being made in interest rate swap compression, multilateral portfolio compression in both cleared and uncleared swaps generates significant benefits for market participants, especially with the adoption of the 'one-book' approach."
"We have been a strong advocate of compression since our first collaboration with TriOptima in 2008, so we're pleased to have surpassed the $100 trillion mark," said Michael Davie, CEO, SwapClear. "The marketplace is clearly eager to reduce systemic risk; in fact, one third of SwapClear's total volume compressed has occurred in the last six months."
TriOptima and SwapClear began compression cycles for cleared swaps in 2008. The frequency increased in 2010 to nine cycles, and in 2011 to 10 cycles, and is expected to significantly exceed that in 2012, with an anticipated increase in the number of SwapClear's 62 members participating by end of year. Participation and volumes have also increased dramatically due to SwapClear and its members investing in streamlined processes and procedures such as the “one-book” approach discussed in ISDA’s recent paper on interest rate swap compression.
For further information, please contact:
Susan Hinko, Global Head of Industry Relations
Tel: + 1 646 744 0410
Nina Truman, Corporate Communications
Tel: +1 212 513 5608
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. With the one-book approach, swaps executed across multiple desks are combined into a central book for clearing and compression purposes. Including all trading desks from an organization increases the number of offsetting trades and has a dramatically positive effect on compression results.
TriOptima, an ICAP Group company, is the award-winning provider of OTC derivatives infrastructure services including triReduce and triResolve.
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 cleared and uncleared interest rate swaps (IRS) in 25 currencies, single and index credit default swaps (CDS) worldwide, 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 7 million trades representing over 75 percent 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.
Established more than 12 years ago, SwapClear is the only truly global clearing service for interest rate swaps. Since being launched in 1999, it has cleared more than 1.5 million OTC interest rate swap trades and currently has 62 clearing members. It was the first OTC clearing service to successfully handle a significant OTC interest rate swap default, doing so when it resolved Lehman Brothers’ $9 trillion IRS default in 2008. In that instance, SwapClear's default management process ensured that more than 66,000 trades in five currencies were hedged and auctioned to other clearing members. SwapClear's process resulted in no loss to any market participants.
The LCH.Clearnet Group is the leading independent clearinghouse 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, commodities, energy, freight, interest rate swaps, CDS 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 clearinghouse sits in the middle of a trade, assuming the counterparty risk involved when two parties (or members) trade. When a trade is registered with a clearinghouse, that clearinghouse becomes the legal counterparty to the trade, ensuring financial performance of the trading parties; if one of the parties fails, the clearinghouse steps in. By assuming the counterparty risk, the clearinghouse underpins many important financial markets, facilitating trading and increasing confidence within these markets.
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 clearinghouse’s highly experienced risk management teams, which 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.