Poor netting gives compression a wake-up call
10 March 2014 New York
Image: Shutterstock
Limited effectiveness of current netting measures has led LCH.Clearnet to enable multiple members to simultaneously compress their trades with each-other.
In an expansion of its compression offering, the clearinghouse is now including multilateral compression via SwapClear, its interest rate derivatives clearing service.
Compression reduces the number of trades and notional outstanding by terminating contracts with offsetting positions, allowing market participants to reduce their counterparty credit exposure and capital costs, as well as increase their operational efficiency through lower administrative and legal expenses.
In 2013, SwapClear compressed over $83 trillion through its proprietary and TriOptima’s compression offering.
Daniel Maguire, global head of SwapClear, said: “The limited effectiveness of current netting measures has caused notional outstanding to be a large driver of regulatory capital holdings for some firms. SwapClear’s compression offering enables firms to reduce notional outstanding and better manage their regulatory capital requirements, with the benefit of simplified operations and lower overheads.”
Zar Amrolia, co-head of fixed income and currencies at Deutsche Bank, said: “Trade compression is an important tool which provides operational efficiencies and allows us to reduce our counterparty credit exposure, which in turn frees up capital that can be deployed elsewhere.”
SwapClear will offer enhancements to its compression offering in 2014, including future cash flow netting, blended rate compression and portfolio de-linking.
In an expansion of its compression offering, the clearinghouse is now including multilateral compression via SwapClear, its interest rate derivatives clearing service.
Compression reduces the number of trades and notional outstanding by terminating contracts with offsetting positions, allowing market participants to reduce their counterparty credit exposure and capital costs, as well as increase their operational efficiency through lower administrative and legal expenses.
In 2013, SwapClear compressed over $83 trillion through its proprietary and TriOptima’s compression offering.
Daniel Maguire, global head of SwapClear, said: “The limited effectiveness of current netting measures has caused notional outstanding to be a large driver of regulatory capital holdings for some firms. SwapClear’s compression offering enables firms to reduce notional outstanding and better manage their regulatory capital requirements, with the benefit of simplified operations and lower overheads.”
Zar Amrolia, co-head of fixed income and currencies at Deutsche Bank, said: “Trade compression is an important tool which provides operational efficiencies and allows us to reduce our counterparty credit exposure, which in turn frees up capital that can be deployed elsewhere.”
SwapClear will offer enhancements to its compression offering in 2014, including future cash flow netting, blended rate compression and portfolio de-linking.
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