TriOptima, which is part of the CME Group, has completed its first triReduce enhanced compression cycle to include sterling overnight index average (SONIA) risk replacement trades.
The cycle took place on October 22, 2020 at LCH SwapClear.
Sonia, which is the reference free rate to replace Libor, is based on actual transactions. It reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions and other institutional investors.
The cycle took place on 22 October at LCH SwapClear.
The triReduce benchmark compression service allows swap market participants to reduce their gross and net exposure to legacy benchmarks as well as increase the adoption of alternate benchmarks through risk replacement trades.
Compression, which continues to be a hot topic, enables traders to remove bilateral trades across mismatched cash flow dates, and offset trade populations in order to reduce the size of the cleared portfolio of OTC derivatives.
Philip Junod, senior director, triReduce and triBalance business management, said: “This is the first step of an iterative process for our swap market clients as they convert their swaps exposure from legacy benchmark rates.”
He added, “The triReduce benchmark conversion service has the capacity to run conversion alongside compression at scale, helping participants proactively reduce their exposure at the same time as increasing their adoption of the alternative reference rates in currencies impacted by benchmark reform.”
TriOptima provides frequent compression cycles in all the major Central Counterparty clearing houses in all cleared currencies. After this first risk replacement compression cycle in sterling, triReduce will offer enhanced compression/benchmark conversion cycles in other currencies as the market need arises.