Reduce operational risk and capital requirements on single name credit default swaps, while preserving net position and market risk for each reference entity
IHS Markit and Creditex provide a joint service to help reduce operational risk and capital requirements on single name credit default swaps, while preserving net position and market risk for each reference entity.
Our compression service reduces the overall gross notional size and number of outstanding contracts in credit derivative portfolios without changing the overall risk profile or present value of the portfolios.
We achieve this by terminating existing trades and replacing them with a smaller number of new replacement trades that carry the same risk profile and cashflows as the initial portfolio. As a result, customers require a smaller amount of regulatory capital to be held against the overall position.
- Lower capital charges – A reduction in the amount of gross notional in the market results in lower capital charges, based on the amount of gross notional exposure a participant has in inventory
- Ease of use – Seamless portfolio compression for participants with automated processes linking with DTCC, allowing participants to manage credit exposure to counterparties as a result of trade submissions
- Trade recouponing – Supports recouponing of legacy trades and replacing them with standard fixed coupon trades (100 or 500 basis points in the US)
- Operational efficiency – Better manage operational risk through reduced number of trades outstanding, as well as by returning fewer trades that need to settle when there is a trigger event on a reference entity