LCH.Clearnet Ltd, the global clearing house, announced today that its market-leading SwapClear interest rate swap (IRS) service has launched a new blended rate compression service. This is the latest initiative in response to a growing need for more efficient use of capital and reduced operational risk. Compression enables market participants to reduce the overall notional and number of line items in their portfolios by netting trades. The new offering, which allows participants to compress trades with different interest rates but the same remaining cashflow dates, will significantly expand the universe of eligible trades.
The increasing impact of mandatory clearing and the proposed introduction of capital ratios under Basel III has created a clear incentive for financial institutions to reduce the level of notional swaps outstanding at the clearing house.
Daniel Maguire, Global Head of SwapClear said: “Managing balance sheet exposure is a top priority for all financial institutions. The introduction of a new blended rate compression service is an innovative response to these challenges, delivering significant efficiencies and cost savings for all participants. The benefits of compression are far-reaching and its impact is rapidly replacing notional outstanding as a benchmark of CCP performance.”
Michelle Neal, Global Head of Listed Derivatives, Markets Clearing and FIC Market Structure, Deutsche Bank said: “Blended rate compression provides members with the flexibility to perform significant amounts of compression on their cleared portfolio at LCH.Clearnet, and it is a welcome development for the industry.”
Steven Mahoney, Managing Director, Credit Suisse said: “Blended rate compression is an all-round win. It reduces the size of client portfolios therefore allowing the economic risk to be more closely aligned with the bank’s resulting leverage ratio calculation.”
In the first eight months of the year, SwapClear has cleared over $446 trillion and compressed $206 trillion through both its proprietary* and third-party TriOptima compression services. As of the end of August 2014, SwapClear has seen a year-to-date net reduction in notional outstanding in IRS of $45 trillion.
SwapClear launched its standard Solo compression offering in December 2011, which allows participants to compress trades with identical interest rates and remaining cash flow dates.
