triReduce
Portfolio compression essential for minimizing risk
Since 2003, when TriOptima launched the triReduce service for portfolio
compression, the demand for this essential tool has grown significantly.
After the financial crisis of 2008, commitments to the global regulators
targeted reductions in notional principal outstandings for both credit
default swaps and interest rate swaps as a high priority. Multilateral
compression of OTC derivative contracts is an effective and efficient
process not only for reducing notionals but also for managing
counterparty credit exposures and releasing capital resources for
deployment in other parts of the business.
Through the end of
2009, TriOptima’s more than 150 triReduce clients eliminated $60.2
trillion in CDS notional outstandings and $61.1 trillion in interest
rate swap notionals. The impact on the interdealer notional
outstandings as reported in the DTCC Trade Information Warehouse and the
BIS statistical surveys has been significant.
Increase liquidity and reduce counterparty exposures
Utilized by all institutions with significant trading flow in interest
rate and credit default swaps, triReduce Rates and Credit compression
cycles play an integral role in the risk management activities of
financial institutions. By eliminating unnecessary trades from their
portfolios while maintaining their desired risk positions in the market,
dealers are able to manage down their counterparty credit exposures and
capture additional liquidity for other trading activities
TriOptima
now runs compression cycles for interest rate swaps in 23 currencies
globally and for the full range of CDS index, tranche and single name
products. In addition, when there are credit events TriOptima runs
special credit event cycles for CDS single name and index trades prior
to the settlement auctions. In 2009, TriOptima assisted the market by
offering special credit event cycles for the French electronics maker
Thomson and for the Japanese financial company Aiful both of which were
firsts under the ISDA “Small Bang” Protocol. By eliminating transactions
before the auction settlement, firms were able to significantly reduce
their legal and administrative costs and facilitate a smooth settlement
process.
triReduce Energy continues to ramp up its participation
base to include financial institutions, energy companies and energy
trading companies. Compression cycles in natural gas, power and oil
contracts are regularly scheduled.
