Electronic trade clearing house LCH.Clearnet has today announced that it has expanded its compression offering to include multilateral compression via its interest-rate derivatives clearing service, SwapClear
Multi compression is now congruent to SwapClear’s existing Solo and Duo compression capabilities and enables multiple members to simultaneously compress their trades with each other, representing the latest corporate development of the service following January’s resuming of triReduce compression cycles by ICAP subsidiary TriOptima within LCH.Clearnet’s SwapClear service, eliminating $16 trillion in notional principal with one EUR and one USD interest rate swap cycle in the last month of 2013.
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 $83 trillion through its proprietary and TriOptima’s compression offering, bringing significant benefits to its members and clients.
Daniel Maguire, Global Head of SwapClear, today made a statement on behalf of the company: “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.”
To provide a viewpoint from within the institutional industry segment, Zar Amrolia, Co-Head of Fixed Income and Currencies at Deutsche Bank, further added “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.”
LCH.Clearnet has plans to add further services to its SwapClear service, whereby it is due to be able to offer additional innovative 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 aims to 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.