OSTTRA’s TriOptima has announced that its combined credit optimisation and compression service for mitigation of bilateral counterparty credit risk and reduction of outstanding gross notional has launched with participation from several investment banks.
A 40% initial margin optimisation saving for credit has been delivered by the triBalance service, meanwhile triReduce has eliminated $21.5 billion of gross notional value from CMBX Index Mortgage-Backed Securities (MBS).
Both services’ combined strength has allowed banks including Goldman Sachs and Citi to optimise their notional, initial margin (IM) and capital exposures on a multilateral basis.
The efficiencies which came about from optimisation happened just before the annual SIMM recalibration on 4 December, a process which saw these specific risk weights increased.
Therefore, the timing of the run was critical in order to stop the IM increase which otherwise would have happened automatically.
This was then followed by the credit compression cycle which helped to reduce MBS exposures in the market, allowing risk mitigation opportunities to consequently be unlocked.
According to TriOptima, this initiative perfectly demonstrates how optimisation and compression can be synchronised to maximise the benefit for banks, forming the blueprint for extended coordination between these two processes across other asset classes.
“We are pleased with the triBalance service and welcome scalable solutions that optimise margin and capital for industry participants,” said Dave Bolatin, global head of FICC capital & portfolio optimisation at Goldman Sachs. “We actively manage participation in multilateral services that facilitate risk reduction with OTC participants & CCPs.”
TriOptima’s multilateral network provides comprehensive asset class coverage for optimisation.
By adding credit, the service is positioned to optimise across all derivative asset classes, FX, commodities, equities and credit derivatives.
“A change in industry focus from gross to net exposure means more clients wish for optimisation and compression to work in tandem,” said Erik Petri, head of triBalance at TriOptima.
“When it comes to credit derivative markets, optimisation needs to be closely followed by compression. In aggregate, our service ensures banks reduce funding costs associated with margin and capital requirements, while at the same time manage the risk of gross notional.”