TriOptima and LCH.Clearnet Limited (LCH.Clearnet) have announced that the first JPY-denominated interest rate swaps (IRS) have been torn up by SwapClear members. The triReduce termination cycle terminated JPY 83.3 trillion notional principal ($1.1 trillion) from LCH.Clearnet’s SwapClear service.
In their commitment letter to the banking supervisors dated March 31st, the G-14 signatories committed to extending termination efforts in the major CCP to additional major currencies such as JPY. With this termination cycle, TriOptima and LCH.Clearnet have now eliminated cleared interest rate swap trades in USD, EUR, GBP, and JPY totaling $67.4 trillion in notional principal.
By eliminating risk neutral trades, which averaged 9 years to maturity, from SwapClear, the six institutions that participated in the cycle have facilitated systems processing by increasing operational efficiency and reducing potential administrative exposure in the event of a default.
To date, $67.4 trillion of cleared transactions have been removed through multilateral trade compression, representing approximately 20% of the notional value of IRS transactions within SwapClear. Additional cycles in EUR, USD, GBP, CHF and JPY are planned for 2011. In April, SwapClear replaced its systems to provide enhanced risk management capabilities and enabling the termination process to be faster, more straightforward and more secure.
”We are pleased that we could assist the G-14 institutions in fulfilling their commitment to the banking supervisors to eliminate cleared swaps in currencies like the JPY,” said Yutaka Imanishi, ceo of TriOptima Asia Pacific. “Working with LCH.Clearnet SwapClear and the clearing house members, we are able to extend even further the triReduce service in the clearinghouse environment and contribute to a more robust OTC derivatives marketplace. We anticipate even broader participation in the next JPY cycle.”
Michael Davie, ceo, SwapClear at LCH.Clearnet said: “As clearing of IRS accelerates, running regular termination cycles across a range of currencies drives down both the notional and number of outstanding OTC derivative transactions and is an important factor in achieving the goals proposed by the regulators. Trade compression is essential for ensuring post-trade efficiency. The value of such a service is strengthened as participation increases, and we therefore look forward to the involvement of more counterparties in future tear-ups.”
