Cross currency tear-ups extended to Korean won

2 min read
Helen Bartholomew

Post-trade derivatives processing firm TriOptima has completed its first cross-currency compression cycle in US dollar/Korean won swaps.

The cycle eliminated US$8.8bn of notional outstanding through the triReduce platform with participation from 11 financial institutions.

Cross currency swaps were added to the firm’s tear-up cycles in April 2014, resulting in more than US$1trn notional eliminated to date across nine currencies in the US$24trn-equivalent notional market.

The addition of Korean won reflects an ambitious expansion of the platform, particularly in Asian currencies, with Australian dollars and onshore Chinese yuan due to be added later this year. Cycles have already taken place for US dollar/Chinese yuan (offshore) and US dollar/Japanese yen swaps.

The firm began its cross-currency efforts with floating/floating swaps but has now expanded the platform to encompass fixed/float contracts and non-resetting basis swaps.

Unlike vanilla interest rate swap cycles, which are largely run in conjunction with clearing houses, cross currency swaps are not yet centrally cleared. With the contracts remaining on a bilateral basis, incentives to eliminate superfluous legacy trades have increased as the instruments have become costly for banks to hold under the 3% leverage ratio hurdle and capital charges under Basel III.

“Cross currency swap compression is now part of normal business operations for Asian institutions,” said Yutaka Imanishi, CEO of TriOptima Asia Pacific. “There is a strong awareness of the operational and capital efficiency benefits of compression and a need to reduce notional exposure on the balance sheet.”

TriOptima has facilitated elimination of more than US$500trn notional of over-the-counter derivatives including interest rate swaps, credit default swaps and commodity swaps since its activities got underway in 2008.

More recently it added foreign exchange forward transactions through a tie-up with FX infrastructure provider CLS, and plans to add equity derivatives to the mix.