TriOptima, the post trade service provider for OTC derivatives, today announced that it had completed the first multilateral ABX index termination cycle.
Ten dealers tore up over 8,000 transactions, which included trades linked to subprime mortgages, through the triReduce service.
Since their introduction in January 2006, volumes in ABX index swaps have grown steadily. Strong demand for a triReduce termination cycle was driven by the monthly payment cycles, frequent shortfall adjustments especially in the wake of recent volatility in the subprime market, and the 30-year plus maturities associated with these transactions. Monthly payment cycles increase operational risk and cost exposures since the back office has to service the trades each month rather than quarterly as with other CDS trades, while 30-year maturities extend these risks over a long period of time.
Raf Pritchard, head of service management in New York, commented, "Dealers took this opportunity to net down their outstanding trades in advance of any potential events affecting notionals such as factoring or rating downgrades. The benefits offered by our termination service - reduced credit and operational risks and costs - were particularly helpful to our clients given the recent period of heavy market activity."
TriOptima continues to expand its offering of triReduce termination cycles as clients grow their businesses. Initially introduced for interest rate swaps, triReduce terminations now cover 16 currencies in rates including developing market currencies; USD, EUR and JPY credit default index and single name swaps; cds index tranches; ABX index swaps; energy swaps; and special credit default cycles. By the end of 2007, TriOptima will have offered 48 triReduce termination cycles globally in credit, rates and energy transactions.