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The reduction of the number of contracts and notional position in the portfolio of a particular asset class/product without affecting the desired risk profile. Can be carried out bilaterally or multi-laterally. Dodd-Frank, European Market Infrastructure Regulation (EMIR) and other rules based on the G-20 2009 Pittsburgh Agreement require portfolio compression from certain counterparties, and recommend it for others. The compression effect is achieved through simultaneous novation, cancellation and/or amendment of multiple contracts, and can be facilitated through settlement of a cash-out sum.
* see Dodd-Frank; European Market Infrastructure Regulation (EMIR); G-20 2009 Pittsburgh Agreement