April 20, 2017 / 1:48 PM / a year ago

DERIVATIVES-CME, TriOptima compress client-cleared peso swaps

LONDON, April 20 (IFR) - CME Clearing has completed its first compression cycle for swaps cleared by non-member clients, alongside post-trade derivatives firm TriOptima.

Using the triReduce service, CME’s latest cycle allowed non-member participants that access the clearinghouse through a broker or futures commission merchant to tear up legacy Mexican peso swaps for the first time. Until now, those clients could only compress superfluous exposures by going into the market to create perfectly offsetting trades.

A total of 17 clients participated in the cycle, including Banorte Mexico.

“Since we are a major participant in the derivatives market, this compression process simplifies the management of our swaps portfolio and optimises our capital requirements,” said Jacaranda Nava, head of derivatives trading at the bank.

Compression has become a vital service for derivatives users to reduce their outstanding swaps exposure books due to rising capital charges that have made the instruments costly for banks to hold. The leverage ratio under Basel III, which is based on gross notional exposures, has particularly driven dealers to slim down their books of such trades.

For client users, compression helps simplify operational processes. With a floating leg every 28 days, Mexican peso TIIE swaps portfolios are subject to thousands of fixing and payment events that can be eliminated through compression.

Many non-dealer derivatives users have moved their Mexican peso swaps into clearing ahead of a regulatory mandate after new rules forcing the daily exchange of variation margin on non-cleared swaps went live in March. Additional clients, including local banks, pension funds and other locally domiciled entities are expected to join for future cycles.

“As clients face additional balance sheet pressures from uncleared margin rules, we are very focused on providing services like multilateral compression, along with the breadth of cleared products we offer, to unlock significant value for our clients,” said Sunil Cutinho, president of CME Clearing.

CME Clearing and TriOptima began their collaboration in 2016 and have since compressed US$26.1trn in notional principal, of which $1.2trn is in Mexican peso swaps. The two firms have run 15 compression cycles across five currencies.

TriOptima, which is owned by NEX Group, runs compression cycles for cleared and uncleared swaps, enabling swaps users to avoid millions of events in Mexican peso and the potential risks and costs that come with them.

“We anticipate that more customers who are accessing clearing through their FCMs will participate in the triReduce service in future cycles,” said Peter Weibel, CEO of triReduce. (Reporting by Helen Bartholomew)

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