LCH.Clearnet has expanded its compression offering to include multilateral compression via SwapClear, its interest rate derivatives clearing service.
Multi compression is in addition to SwapClear’s existing Solo and Duo compression capabilities and enables multiple members to simultaneously compress their trades with each other.
Compression reduces the number of trades and notional outstanding by terminating contracts with offsetting positions. This allows 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 USD83trn through its proprietary and TriOptima’s compression offering.
Daniel Maguire, global head of SwapClear, says: “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, says: “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 additional enhancements to its compression offering in 2014, including future cash flow netting, blended rate compression and portfolio de-linking; subject to regulatory approval. Future cash flow netting will allow trades with different maturities, but the same future cash flow, to be compressed. Blended rate compression will enable trades with different coupons, but otherwise identical terms, to be compressed.
Portfolio de-linking will give members the ability to manage trade compression independent of other counterparties. These service enhancements will allow members to compress a greater percentage of their portfolios.