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Sunday, 19 May 2019

TriOptima service helps to double compression of A$ swaps

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Efforts by the derivatives industry to reduce outstanding trade counts are gaining traction outside of the US and Europe, where compression services are already well accepted.

Participants in the Australian dollar interest rate swaps market reduced outstanding notionals by US$2.15trn two weeks ago using post-trade derivatives processing firm TriOptima’s triReduce compression service.

The value of compressed trades doubled over the last cycle conducted in May 2014, a by-product of efforts to increase the pool of available trades and counterparties capable of participating by ‘unlinking’ cleared Australian dollar swaps from their original counterparties through LCH.Clearnet’s SwapClear Australia service.

Unlinking means that counterparties looking to eliminate outstanding trades do not have to depend on the agreement and participation of their counterparty on a particular swap to effect compression.

“This AUD cycle at SwapClear was a dramatic increase over the last cycle in May 2014 where trades were still linked,” said John Chiah, head of triReduce Asia-Pacific.

“We went from 14 to 20 participants including local representation, and the notional eliminated almost tripled. This continues the trend we’ve seen of increased focus on compression in the region, and underscores the impact of unlinking trades on compression results in a clearinghouse.”

The increase in Australian dollar compression comes on the back of TriOptima’s first compression of US dollar/South Korean won cross-currency interest rate swaps in June, and an increasing focus across the industry of reducing swaps exposures where possible to help alleviate regulatory capital and leverage burdens. (See story “Compression drives down CCP swap notionals”)

“We expect this demand for compression services to continue as market participants recognize the benefits of streamlining their portfolios to increase their capital efficiencies,” said Marcus Robinson, head of SwapClear Australia.

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