Foreign exchange (FX) market infrastructure CLS and risk-management service provider TriOptima are collaborating to deliver an FX forward compression service to the market.
The move is intended to address various needs of market participants, including the regulatory requirement that obliges financial counterparties to consider the use of compression services for non-centrally cleared OTC derivatives, if one is available.
According to the Bank for International Settlements, FX forward transactions account for 13 percent of overall trading on the global foreign exchange market, while trading volumes rose by 43 percent between 2010 and 2013.
The new service aims to reduce the number of trades, limiting gross notional exposures and reducing counterparty risk and leverage ratios.
It should also ensure compliance with EMIR, Basel III and Dodd-Frank regulations.
CEO of CLS David Puth said: “International regulators have recognised the importance of portfolio compression from a risk mitigation perspective, and CLS is ideally placed to deliver optimal access to an FX compression solution.”
He added: “This collaboration creates value for our settlement members through additional services that use our core operational and IT capabilities and those of TriOptima.”
Peter Weibel, CEO of TriOptima’s compression service triReduce, said: “Adding FX forwards to our compression catalogue underscores TriOptima’s continually expanding role in the OTC derivatives post trade infrastructure, having already eliminated more than $524 trillion notional principal across multiple asset classes in cleared and uncleared environments.”
“We are very pleased to be working with CLS and its members to deliver another important risk management tool to the industry. We believe this kind of collaboration serves the best interests of our mutual customers.”
The service is scheduled to go live later this year, subject to approval.
