Quantile Technologies says it has successfully completed its first cleared interest rate initial margin (IM) optimisation run with LCH.
The new service bolsters Quantile’s suite of optimisation services, which now includes regular runs for cleared FX and interest rates, together with uncleared SIMM optimisation for FX, interest rates and equities. By offering optimisation for both cleared and uncleared asset classes, the firm says it connects liquidity pools and generates increased capital and margin benefits for clients.
The recent run saw 14 market participants rebalance their interest rate portfolios, with four entities leveraging the new cleared functionality. The run generated margin savings of US$4 billion, Quantile says.
“In our experience Quantile’s IM optimisation service delivers significant risk reduction and margin savings,” says Lear Janiv, managing director at Goldman Sachs. “The expansion into cleared interest rates could lead to materially higher efficiencies across sell-side and buy-side communities.”
Quantile launched its optimisation service in 2017. Designed to reduce counterparty risk and the cost of funding initial margin, the multilateral process works by analysing the risk of transactions between participants and calculating a new set of trades that generate margin savings without changing market risk positions. The firm says the service has experienced “significant growth”, claiming that it regularly reduces initial margin postings across multiple asset classes by over $10 billion on average.
“Adding cleared interest rates to our optimisation service is a significant milestone for us, and the first LCH run demonstrates huge potential to deliver increased efficiencies across CCPs,” says Andrew Williams, CEO at Quantile. “As we continue to extend our product and venue coverage, clients are able to optimise more of their risk, irrespective of where they choose to execute or clear.”
Varqa Abyaneh, chief product officer at Quantile, adds, “We continually look to free up scarce capital and reduce the costs of trading for our clients. By incorporating cleared interest rate optimisation into our proven process, we’re delivering greater IM reduction and increasing market liquidity – at a time where funding and liquidity are critical.”