TriOptima confirmed that the 12% decline in CDS notional outstandings announced today by ISDA is primarily due to its triReduce tear up cycles in the first half of 2008. Despite robust trading activity in the first six months of the year, TriOptima’s termination of $17.4 trillion in interdealer CDS notional principal during this period contributed to the overall decline.
"As the sole provider of portfolio compression services in the first half of 2008, we can confirm that tear ups were a positive factor in stabilizing the growth in notional principal levels that had attracted the attention of regulators, "said Brian Meese, Group ceo. "We have long believed that aggressive use of tear ups is one of the most effective ways to manage risk, and a vital complement to central counterparty activities. We include all dealer counterparties, not just a few, and we eliminate, rather than mitigate, the risk associated with those trades."
"We concur with ISDA’s ceo Robert Pickel that the decrease in notional outstandings primarily reflects the industry’s efforts to tear up transactions and reduce risk. We have seen wider and more committed participation in our tear up cycles among our dealer constituency since the middle of 2007. The $17.4 trillion terminated among dealers through June of this year was unprecedented. And we have continued to see active support of tear ups into this recent period of market turmoil," continued Meese.
According to ISDA’s Mid-Year 2008 Market Survey, CDS notional outstandings decreased to $54.6 trillion from $62.3 trillion, but the annual growth rate for credit derivatives increased 20 percent from $45.5 trillion at mid-year 2007.
TriOptima offers tear-up cycles in all types of’ CDS transactions including: US, European and Asian single names and indices, emerging market single names and indices, and US and European tranches,. Participation has reached record levels as dealers continue to reduce their notional principal outstandings, increase their liquidity and manage their counterparty credit exposures.
