After a number of years having to take reactionary measures in
response to new regulatory requirements, panellists at Profit & Loss’ Forex Network New York conference expressed
enthusiasm for a new wave of innovation that has the potential to re-shape FX
Lmrkts, a compression provider which recently
facilitated the first multilateral FX compression designed to lower
counterparty exposures and consolidate cash flows, has agreed a strategic partnership
with Tradition to handle execution and compression processing for FX forwards.
A limited release ...
TriOptima announces that 11 CME Group IRS clearing members
eliminated 12.5 trillion MXN ($664 billion) notional outstanding in the first
triReduce multilateral compression cycle for cleared Mexican peso (MXN)
interest rate swaps (IRS).
Over 35% of the cleared MXN notional principal outstanding
in CME ...
Just about 10 months ago the deal was announced to sell Icap’s voice business to Tullett Prebon and at that time, in this column, I suggested that a consequence of that deal would be an easier path for anyone looking to buy Icap’s electronic business, subsequently revealed to be named Nex.
Obviously I cited an exchange as the most likely buyer and it seems, if the headlines of last week are anything to go by, that the pieces are being moved into place. Moving pieces is, however, very different to an actual deal – what are the chances of that?
As leverage requirements make FX exposures a bigger pain point for the banks, many are looking towards compression services to solve for this. Galen Stops looks at how these services work and what they could mean for the industry.
One of the responses by global regulatory bodies to the 2008 financial crisis was to require banks to hold more capital against their financial exposures, creating a bigger buffer to protect them against adverse market conditions.
Capital constraints have widely been cited as a reason for declining activity in some markets and liquidity events in other, therefore it is not surprising that compression services, whereby offsetting trades are netted off against one another to reduce the notional amount on banks’ balance sheets, have found favour amongst banks and major dealers.
The Bank for International Settlements (BIS) has released its latest semi-annual survey of OTC derivative markets which highlights the growing impact of central clearing on interest rate derivative markets.
The publication presents the combined results of two complementary BIS surveys on positions in OTC derivatives markets: the semi-annual survey of derivatives dealers in 13 jurisdictions, and the Triennial Central Bank Survey of dealers in an additional 33 jurisdictions. The surveys took place at end-June 2016. A companion survey on turnover in foreign exchange and OTC interest rate derivatives markets took place in April 2016, and the results were published in September.
Capitalab, an entity within BGC Partners, has launched a multilateral portfolio compression service for FX options, as well as for interest rate caps and floors.
Since June 2016, five FX options compression runs have been executed, in USD/JPY and EUR/USD, with the participation of respectively five and seven FX options dealers.
In the last three interest rate options compression runs organised by Capitalab, participants have also included caps and floors, together with swaptions. Caps and floors – options on Libor and Euribor forward rates - are known to be capital intensive, because of their large notionals.
LCH is seeing the benefit of the push towards central clearing of derivatives, the clearinghouse announcing its SwapClear service cleared record volumes of interest rate derivatives in 2016.
LCH says it processed over $665 trillion in notional over the course of the year, representing an annual increase of 25%. “Both members and their clients increased their flows through LCH, with the buy side clearing a record $139 trillion in notional at SwapClear,” the firm says. “These volumes were driven by customers clearing new products, such as inflation swaps, as well the continuing effects of regulatory change.”
Inter-dealer broker Tradition says it has delivered an initial margin optimisation in FX, after extending its partnership with compression and analytics provider LMRKTS.
The two firms announced a strategic partnership in 2016 to handle execution and compression processing for G10 FX forwards and they say in February they completed a Standard Initial Margin Model optimisation for NDFs with a group of Tradition’s clients.
Tradition says it used its existing infrastructure and connectivity, in combination with LMRKTS’s analytics, to provide the end-to-end service for participants.