Markit and Creditex today announced the successful completion of a second round of industrywide portfolio compression runs for the credit derivatives market in North America.
Earlier today, live portfolio runs took place in North America for CDS contracts referencing several widely traded North American technology, media and telecommunications companies. It achieved a 54% gross notional reduction across all participating counterparties. Thirteen credit derivatives dealers participated in this run.
Markit and Creditex were selected by the International Swaps and Derivatives Association (ISDA) to provide infrastructure to support commitments made by major market participants to the Federal Reserve Bank of New York relating to improved operational efficiency and risk reduction.
The first North American compression run was held August 27 for widely traded telecommunications companies. Compression runs for CDS referencing European technology, media and telecommunications companies occurred on September 4 and September 11.
"We are pleased to have successfully completed another portfolio compression run in North America with the participation of the largest dealers in the CDS market. As this initiative across sectors is rolled out globally, we will help the industry reduce risk and improve capital efficiency in the credit derivative markets," said Kevin Gould, Executive Vice President and Global Head of Data Products and Analytics at Markit.
"The portfolio compression runs are a critical component in addressing operational issues highlighted by industry participants and regulators in recent months," said Sunil Hirani, Creditex Chairman and CEO. "We are pleased that this platform is being well received by the dealer community and we will continue to work with the dealer community to help improve operational efficiency and market scalability."
The portfolio compression initiative is the second major industry effort on which Markit and Creditex have collaborated with ISDA and the major dealers to provide critical market infrastructure. The two companies are official co-administrators of ISDA cash settlemement auctions which allow for efficient and orderly settlement of credit derivative contracts following a corporate default. The cash settlement auction mechanism was launched in 2005 and has since been relied upon in connection with 12 corporate defaults, most recently that of Lehman Brothers Holdings.