A total of USD110 trillion in notional volume in EUR, JPY, GBP and USD interest rate swaps has been terminated by 21 SwapClear members using TriOptima’s triReduce service since the first cycle in 2008.
In 2012 alone, USD20.4 trillion has been eliminated, accelerating a trend to larger and more frequent termination cycles.
Compression of cleared trades fulfils existing commitments to international banking regulators and also anticipates a final CFTC Core Principle Risk Management rule requiring a clearing organisation to offer compression to swap dealers and major swap participants.
Terminating risk-neutral trades in SwapClear contributes to reducing systemic risk and facilitates systems processing by increasing operational efficiency and reducing potential administrative exposure in the event of a default. Through this process, more than 950,000 transactions have been completely terminated within SwapClear.
“We are pleased that we have seen renewed focus on eliminating cleared swaps among SwapClear member banks,” says Peter Weibel, triReduce CEO. “As highlighted by ISDA’s paper on the progress being made in interest rate swap compression, multilateral portfolio compression in both cleared and uncleared swaps generates significant benefits for market participants, especially with the adoption of the ‘one-book’ approach.”
"We have been a strong advocate of compression since our first collaboration with TriOptima in 2008, so we’re pleased to have surpassed the USD100 trillion mark,” says Michael Davie (pictured), CEO, SwapClear. “The marketplace is clearly eager to reduce systemic risk; in fact, one third of SwapClear’s total volume compressed has occurred in the last six months.”
TriOptima and SwapClear began compression cycles for cleared swaps in 2008. The frequency increased in 2010 to nine cycles, and in 2011 to 10 cycles, and is expected to significantly exceed that in 2012, with an anticipated increase in the number of SwapClear’s 62 members participating by end of year. Participation and volumes have also increased dramatically due to SwapClear and its members investing in streamlined processes and procedures such as the “one-book” approach discussed in ISDA’s recent paper on interest rate swap compression.
