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July 30, 2015

Compressions by ISDA: New entrants, new products and big results

ISDA's most recent research paper (attached below) provides evidence of the increased activity in compressions, particularly those to reduce the number of interest rate swaps. BIS attributes to compressions the 10% reduction in IRS notionals in the second half of 2014. According to ISDA, the incentive to reduce capital requirements under Basel combined with the new technology solutions, are the main drivers of the increased activity. In the first quarter of 2015 compressions of $987 billion is just short of the $1.2 trillion achieved in the full 2014.

The participation of clearers such as LCH Clearnet, triReduce and CME are now taking a significant slice of the compression activity. New arrivals also include SEFs such as Bloomberg, Tradeweb and TrueEx are now helping with the automation of netting and compressions. ISDA's research paper is 7-pages long. It covers clear statisitics, and is also useful to understand new jargon: solo, blended-rate and duo compression; essential vocabulary for those who follow post-trade risk management solutions.  


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