challenges & solutions
Derk Brouwer, a founder of TriOptima, talks about how events affecting the financial markets led to the evolution of TriOptima’s services beginning with triReduce.
The original “brain wave” that served as inspiration for TriOptima was shaped by the changing market place and the pressures that were growing on operational and risk management activities.
Q: What made triReduce multilateral terminations an idea whose time had come?
A: The volume in OTC derivatives skyrocketed leading up to the Euro and after. ISDA reported 32% compounded annual growth in OTC derivatives. However the business was constrained by internal credit limits which capped the acceptable amount of exposure to trading counterparties. If everyone could terminate their swaps at the same time, the efficiency of the swap market would improve and trading velocity would increase. The triReduce service was able to provide market participants with the ability to free up their credit lines and continue to trade while also enhancing operational efficiency.
Q: How difficult was it to convince banks to use triReduce?
A: There was a lot of resistance to change. We often heard, “If the concept is so simple, why hasn’t anyone done it before?” However, the triReduce launch in 2003 coincided with depressed prices in bank stocks which made increasing shareholder returns by reducing costs a priority, so there was a growing momentum to participate in the triReduce cycles globally.
Q: How did the TriOptima strategy develop after triReduce’s success?
A: During the time that triReduce started to gain traction, there was a lot of focus on STP (straight through processing) and automation among the banks in order to cope with the pressures on the back office from trading volumes.
It was clear from the data breaks we observed in triReduce that there was a need for an automated reconciliation service that would give the large dealers a way to ensure that their OTC derivative portfolios were actively reconciled. TriOptima saw that the matching capabilities of triReduce could serve as the basis for a broader portfolio reconciliation service.
At the same time, the size of the portfolios and the proliferation of counterparties compelled the dealers to take a good look at their collateral management practices. They got together and decided to work as a group to improve those practices beginning with portfolio reconciliation. They evaluated several options and decided to work with TriOptima. The result was triResolve, which today has over 6 million trades in its reconciliation service.
Q: How does ICAP fit into the picture?
A: ICAP was an early investor in TriOptima who understood the emerging importance of the post trade space. They have developed a post-trade risk management division and appreciate TriOptima’s achievements in that space.
Q: Can TriOptima continue to be a leader in the OTC derivative markets?
A: The TriOptima team has always cultivated its ability to anticipate problems before they are generally recognized by the market so that we can provide solutions as they are needed, sometimes even before! With the evolving global regulatory landscape, there will be many new opportunities to support changes in the business environment.
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