Interest Rates Archives - Page 2 of 5

ISDA’s 2021 Definitions Hit Key Adoption Landmark

ISDA and post-trade services provider OSTTRA have announced that the interest rate derivatives market has overwhelmingly transitioned to the 2021 ISDA Interest Rate Derivatives Definitions, hitting a key adoption landmark six months after implementation.

All major central counterparties incorporated the new definitions into their rule books in the last quarter of 2021, meaning all legacy and new cleared trades reference the 2021 Definitions, accounting for approximately 75% of the total interest rate derivatives market. Latest figures from OSTTRA’s MarkitWire platform show that 68% of non-cleared interdealer and 65% of non-cleared client interest rate derivatives electronically confirmed on the platform also now reference the new definitions…

To continue reading click here, or contact us at info@osttra.com.

Compression service by OSTTRA unlocks additional compression potential for G-SIBs

LONDON, 2 November 2022 – OSTTRA, the global post-trade solutions company, today announced that its market-leading portfolio compression service, OSTTRA triReduce, has compressed $26.4 trillion of interest rate derivatives in September as Global Systemically Important Banks (G-SIBS) look to reduce notionals before year-end.

More than $1 trillion in additional notional was compressed in September as a result of OSTTRA triReduce’s innovative trade refactoring solution. The patented solution, currently implemented by four financial institutions, transforms swaps portfolios to efficiently minimise gross notional exposures. Previously, market participants would experience a build-up of historic trades lacking the necessary offsets to unlock compression. Trade refactoring opens the historic population of trades, which can lead to a lower steady state of gross notional. This method has delivered an increase of nearly a third (30%) in gross notional compressed for market participants vs September last year.

“Being classified as a G-SIB is a fundamental component of financial institutions’ overall regulatory capital. It is key for banks to have a detailed understanding of their G-SIB scores, particularly as classification is assessed relative to their peers,” said Magnus Jonsson, head of business management triReduce and triBalance, at OSTTRA. “The challenge is that G-SIB assessments are highly sensitive to gross notional of derivatives contracts. This is why we are seeing such a big uptick in market participants looking to significantly reduce their notionals before the year closes. We’re happy to see our latest innovation being adopted by more participants and the significant increase they are seeing in results, and we continue to innovate to support current and future market participants in maximising their notional compression.”

For more information please click here or email us on info@trioptima.com.

OSTTRA Streamlines Trade Reconciliation with Connectivity Between MarkitWire and triResolve

NEW YORK, LONDON, 6 July 2022 – OSTTRA, the global post-trade solutions company, today announced new connectivity between two of its post-trade services – MarkitWire, the leading electronic trade confirmation and processing platform and triResolve, the market leader for portfolio reconciliation, collateral management and reporting reconciliation.

Through this enhancement, trades confirmed by MarkitWire can be seamlessly delivered directly into triResolve, across a common network of more than 2,000 firms. This will drive standardisation of data for reconciliation, bringing improved efficiency, cost reduction and greater transparency between counterparties.

The direct connectivity is live with nine existing customers, covering interest rate derivatives and equity derivatives. It will also include repo transactions following the go-live of OSTTRA Trade Processing for Repos in Q3.

The lack of data standardisation through the post trade lifecycle is a persistent problem in the OTC industry, increasing operational cost and complexity. This is a challenge OSTTRA is well equipped to address.

OSTTRA was formed in 2021 through the combination of MarkitServ, Traiana, TriOptima and Reset, four businesses that have been at the heart of post-trade evolution and innovation for more than 20 years. The launch of this link reflects OSTTRA’s ongoing commitment to build upon its global network to streamline and standardise post-trade workflows across a broad range of asset classes.

The enhanced workflow leverages the MarkitWire trade ID to link the full MarkitWire FpML trade representation with the existing data in triResolve for customers who opt to switch on the new link. This information allows users to quickly remediate trade breaks identified by triResolve, making portfolio reconciliation a more efficient process.

The connection will bring operational alignment between MarkitWire users and collateral and reconciliation teams using triResolve, with minimal input needed and no additional cost to reap the benefits.

Peter Altero Jr, Head of Rates Business Development at OSTTRA, added: “The connectivity between MarkitWire and triResolve shows that OSTTRA is focused on accelerating innovation in post-trade. Our clients will only have to flick a switch on the MarkitWire side to see the significant benefits of enhanced data in triResolve. This is just the beginning. There is so much more efficiency to be gained up and down the post trade stack by having access to enhanced, standardised transactional data. Watch this space”.

Sheila Schofield, Head of triResolve Business Management EMEA, concluded: “Data from MarkitWire acts as a gold copy for the majority of OTC derivative transactions. For our clients, seamlessly incorporating this data in portfolio reconciliations will result in improved efficiency with minimal effort and no extra cost, enabling them to focus on their value-add tasks.”

Multilateral Backloading for OTC IRS

Our seamless mechanism for backloading trades into clearing or settlement venues leverages the multilateral benefits of bulk optimisation and processing connectivity via OSTTRA MarkitWire, allowing customers to benefit from efficiencies and processes such as CCP conversion events.

Participants simply submit their non-cleared trades with the expected PV impact from backloading. Our algo identifies the maximum number of trades that satisfies each participant’s tolerances, and the existing trades are amended in OSTTRA MarkitWire to automatically send for clearing.

Benefits

Enables eligible trades to gain access to CCP Conversion
Fewer trades are reliant upon ISDA Fallbacks
Reduces portfolio fragmentation
PV impacts can be constrained multilaterally as opposed to per counterparty
Trade processing via OSTTRA Markitwire includes

o Pre-conversion – clearing eligibility check

o Post-conversion: bulk backloading to clearing

The service was launched in 2023 for SGD-SOR & THB-THBFIX but now includes

· USD, EUR & GBP Inflation Swaps

· CAD-CDOR IRS

· MXN-TIIE 28D IRS

· PLN-WIBOR IRS

OSTTRA’s TriOptima launches trade refactoring solution to support notional reduction drive

LONDON, 28th October 2021 – OSTTRA’s TriOptima, a leading infrastructure provider that lowers costs and mitigates risk in OTC derivatives markets, today announced a new trade refactoring solution that enables financial institutions to transform their swap portfolio with the most efficient amount of notional. The trade refactoring system is covered by U.S. Patent Number 10,803,456 and other pending U.S. and international patents and applications.

Previously, market participants would experience a buildup of historic trades lacking the necessary offsets to unlock compression. TriOptima’s trade refactoring solution unlocks the historic population of trades, which can lead to a lower steady state of gross notional. This new technique can deliver increases of well over 25% in gross notional compression for market participants.

The refactoring solution is available for all cleared currencies and comes at a time when market participants are preparing for benchmark cessation and the Globally Systemic Investment Banks (G-SIB’s) are looking to compress any extra notional ahead of year-end.

“With benchmark cessation looming, we continue to innovate to support market participants in maximising their notional compression and simultaneously achieving their cessation goals,” said Philip Junod, Senior Director, triReduce and triBalance Business Management. “Market participants can now significantly reduce their notional before those all-important year-end deadlines.”

For more information, visit trioptima.com/trireduce

Conversion of non-cleared cross-currency swaps

Our cross-currency swap conversion service offers proactive conversion of non-cleared cross currency swaps that reference legacy benchmarks. The service provides flexibility whilst mitigating the risks involved in converting to the new alternative RFRs.

Standard Ibor-Ibor USD-CAD CCS trade

	Before Conversion	After Conversion
Floating Rate Index	CAD-CDOR	CAD-CORRA-OIS-COMPOUND
USD (resetting) leg	USD-LIBOR	USD-SOFR-OIS Compound

To minimise risk impact and resulting PV difference subject to cash compensation, the conversion process generates overlay transactions in the form of market standard cleared interest rate swaps and overnight index swaps. Only a small residual PV impact from the conversion is settled in cash between the participants of the run, making the process market risk neutral.

Cleared overlay trades

Highlights

Conversion method

Participants select single-leg or full-trade conversion chosen at a currency pair level

Conversion Spread

This is pre-defined ahead of the exercise & applied to the non-resetting leg of the amended cross-currency swap

Maximum Transparency

All participants will be aligned on the conversion method & the conversion spread leading into the exercise

“Our engagement with the industry over the last two years highlighted that market participants are committed to finding innovative solutions to reduce their exposure to legacy benchmarks. We are pleased to provide our non-cleared conversion service to help market participants overcome the technological and operational challenges of implementing fallback procedures and waiting until the deadlines for the respective legacy rates.”

– Vikash Rughani, Business manager at OSTTRA triReduce and triBalance

The service is available to customers with legacy benchmark exposure in cross-currency swaps referencing any indices subject to cessation, including those in MXN, PLN, ZAR and CAD.

Delivered by OSTTRA triReduce and triBalance, non-cleared trade amendment and connectivity to CCPs for the overlay swaps are provided via OSTTRA MarkitWire.

Benchmark Conversion

Manage the transition of legacy benchmarks in OTC swaps portfolios

Eliminate legacy benchmark transactions from OTC swap portfolios whilst proactively and iteratively converting the remainder onto alternative reference rate benchmarks. OSTTRA’s Benchmark Conversion cycles allows firms to manage the pace of their benchmark transition.

Compression first…

Maximise gross notional reduction in legacy and alternative benchmark swaps.

Multilateral compression helps market participants reduce their gross notional and line items while keeping their swap positions market risk neutral overall.
In triReduce compression cycles, gross exposures are brought down towards each firm’s core net risk position.
Simultaneous compression in the alternative benchmark helps keep overall gross notional down throughout the conversion process.

…Converting the remainder.

Convert remaining legacy benchmark swap exposure to the alternative benchmark.

Remaining legacy benchmark swap exposure that cannot be compressed, through terminating trades or amending their terms, can be converted to the new benchmark through the introduction of risk replacement trades in the alternative reference rate, as part of regular triReduce compression cycles.
Each party sets constraints on outright risk, as well as the basis risk between various benchmark tenors and alternative benchmarks, providing each firm with certainty throughout the conversion process on their risk impact.
Risk-based constraints allow each participant to control the amount of conversion taking place. Tighter limits will mean only termination of trades or amendment of terms take place, wider settings facilitate inclusion of risk replacement trades in a single cycle.
Should alternative benchmark term rates become available, risk and basis tolerances can be applied to control conversion into any new alternative rates.

Key Features

Proactively compresses legacy benchmark trades and converts the remainder to the alternative RFR
A single unified process
Applicable to all IBORS and CCPs
Deep liquidity pool, proven process and established connectivity to CCPs and market infrastructure providers
Participants retain control of their market risk

If you are a market participant with cleared swaps, you are eligible. Contact info@osttra.com to find out more.

OSTTRA Capital Optimisation – Now with SwapAgent

We are pleased to announce that the OSTTRA triBalance Capital Optimisation service is now live with SA-CCR optimisation of settled-to-market netting sets by proposing new overlay trades designated into SwapAgent. This functionality is now available in both our Interest Rate and FX optimisation runs.

In December last year we completed the first Interest Rate cycle where we optimised bilateral and cleared exposures alongside participants settled-to-market exposures. The first FX cycle to include SwapAgent overlay trades followed shortly thereafter and was completed in January.

“Leveraging SwapAgent and its STM procedures presents new opportunities for our clients to further reduce capital costs under SA-CCR.”

Christina Högegård, Business Manager OSTTRA triBalance

Counterparty credit risk impacts a firm’s cost of trading due to capital requirements, driven by RWA and Leverage Ratio, and funding costs driven by Initial Margin. We are running frequent optimisation cycles in both FX and Interest Rates where our customers can proactively manage RWA and Leverage Ratio requirements, calculated using SA-CCR or Internal Model Method, while simultaneously optimising Initial Margin

Semi-annual FX and interest Rate Capital Optimisation

“We welcome OSTTRA triBalance using SwapAgent’s risk management and standardisation process for the bilateral market as a building block in their margin and capital optimisation.”

Nathan Ondyak, Global Head of SwapAgent

To discuss your capital optimisation needs, contact info@osttra.com.

2022 USD LIBOR Benchmark Conversion in Review

Following the LIBOR cessation events in CHF, EUR, GBP & JPY at the end of 2021, focus turned to managing down outstanding exposure to USD LIBOR in 2022. At the beginning of the year, the market appeared to take a deep breath and debrief on the positive outcomes of the conversion activities and fallback implementations, as well as planning for the areas that could be improved upon ahead of the upcoming cessations.

Outstanding USD-LIBOR exposures gradually declined through the year and we in turn saw quarterly declines through 2022 in notional terms.

However, we observed exposure in trade count terms materially tick up in Q4 through a combination of our continued calibration of the prioritisation given to legacy benchmarks, as well as bringing new participants into the network.

Cleared USD LIBOR Terminations in 2022

As market participants have geared towards proactive and iterative reduction of their legacy benchmark exposure, we have seen consistent quarter-on-quarter growth in the use of our OSTTRA triReduce benchmark conversion cycles, as well as the adoption of our most advanced methodologies for compression and conversion.

The charts below show how this usage has trended over the year, laying a great foundation for a big push this quarter in 2023.

USD Benchmark Conversion Participation

Risk Replacement Trade Adoption

To discuss your benchmark conversion needs, contact info@osttra.com.

Delivering Certainty in Uncertain Times

triReduce’s benchmark conversion service offers users an iterative approach to mitigating uncertainty about the future of legacy benchmark swaps. Swap market participants can proactively reduce both their gross and net exposure to legacy benchmarks at the same time as increasing their adoption of the alternative reference rate for each respective currency. This service will be provided for trades cleared in all major central counterparties (CCPs) as well as for trades referencing legacy benchmarks held in non-cleared portfolios. A single process, in which participants retain control of the transition within their portfolios, is key to managing the change in your own mid-market valuations. By ensuring all compression and conversion takes place iteratively and at each firm’s own valuations, the service brings clarity to discussions about how to adopt alternative risk-free rates (RFRs) in swap portfolios.

Reviewing the data requirements

To better understand what is required, the image below illustrates triReduce’s benchmark conversion service. As they do today, participants will submit their existing swap portfolios, where it is likely they will have legacy benchmark and alternative RFR referencing trades. This enables the service to compress where possible and convert into the alternative RFR where compression is not possible.

Participants will provide discount factors and their own mid-market valuations, as well as any measures of risk they would like to control through the process for their existing trades and for additional template trades. These template trades are a standard representation of alternative RFR trades that will be used to establish additional liquidity at specific maturities to facilitate the conversion.

With this information and the corresponding risk-based limits that participants define, triReduce’s benchmark conversion service will return a proposal of fully terminated, amended and replacement trades that reduce exposure to legacy benchmarks in a controlled manner. Once accepted by each participant within a finite window of time, the proposal is passed on to the CCP for processing in the case of cleared trades.

Reduced legacy benchmark over-the-counter swap exposure

The result is a reduction in exposure to legacy benchmarks achieved through a simultaneous reduction of gross notional exposure and conversion of net risk exposure. TriOptima combines these two objectives and delivers outsized results by bringing together its world-leading portfolio compression network and new participants with core net ICE Libor over-the-counter swap portfolios (see below image).

To discuss your benchmark conversion needs, contact info@osttra.com.