LONDON, Oct 18 (IFR) - Quantile Technologies has completed its first compression run of over-the-counter swaps cleared at LCH, after becoming the first firm in almost a decade to be granted ‘Approved Compression Service Provider’ status at LCH’s SwapClear platform.
Swaps compression involves matching identical and offsetting trades between clients and netting them down into fewer line items while preserving the overall risk profile. The process has emerged as a vital activity in the wake of sweeping over-the-counter derivatives market reforms.
Basel III capital rules have piled pressure on dealers to scale down bloated balance sheets by eliminating unnecessary swaps notional. New reporting and clearing requirements stemming from Dodd-Frank and the European Market Infrastructures Regulation have also led banks to reduce the operational burden associated with unwieldy swaps books.
As a result, LCH has compressed more than US$1 quadrillion of swaps notional through a combination of its own unilateral compression service, blended-rate compression and multilateral services run in conjunction with TriOptima - part of NEX Group.
Quantile’s compression service operates alongside its existing counterparty risk reduction platform for non-cleared derivatives, which aims to drive initial margin and capital savings for banks.
“This is an important step forward in risk management for the industry,” said Stephen O’Connor, chairman of Quantile. “By enabling a faster, more streamlined process for compression, we are delivering new efficiencies to our clients.”
Market participants welcomed the emergence of a new player in the market and a number of dealers noted a successful initial cycle, with low operational complexity.
“Not only does this service achieve great notional reduction, but a real differentiator for Quantile is their focus on operational efficiency and the ease of use for their clients,” said Lear Janiv, managing director of Goldman Sachs, which participated in the first cycle.
Boyd Winston, head of macro compression operations at JP Morgan, welcomed the seamless execution of the first run.
“It is encouraging to see greater choice in multilateral compression services, which help the participants to efficiently manage the size and risk of their swap portfolios,” he said.
Daniel Maguire, group COO of LCH, said the addition of Quantile as a compression partner provides more choice to members and their clients.
“Compression is an integral part of our ongoing efforts to improve capital efficiencies for market participants, and we are very pleased with the outcome of this first run. We look forward to doing more compression runs together with our mutual customers.”
Quantile is gearing up to expand its dealer footprint beyond the G15 leading global banks and extend its services to buyside institutions. (Reporting by Helen Bartholomew)