As the overall clearing volume for OTC interest rate derivatives continues to grow, Eurex Clearing has performed a tri-party multilateral portfolio compression.
For this multi-day procedure, Eurex Clearing used the compression service triReduce® offered by TriOptima®. Compression aims to offer clients increased potential for notional reduction which is not covered by the usual daily risk-free netting procedures. It allows firms to cancel or offset trades either in their own portfolios or multilaterally with other market participants within defined risk parameters. As capital rules and the leverage ratio under Basel III are based on gross notional exposures, compression lowers capital requirements for the derivatives business. In addition, cutting notional values and the number of individual transactions also reduces operational and counterparty credit risk exposures.
The number of trades and the volume participating in the compression run were each reduced by about 30 percent. Thereby, over 94 percent of the compressed volume is in Forward Rate Agreements (FRA). Overall effect of the compression resulted in a reduction by 16 percent of total outstanding volume in OTC interest rate derivatives at Eurex Clearing.
Matthias Graulich, Member of the Executive Board of Eurex Clearing: “We are very satisfied with this compression cycle. It shows that we can deliver significant compression efficiencies based on the business we have built in 2018.”
Eurex Clearing plans to conduct regular compression cycles according to market needs and demand.
