TriOptima terminates €420 billion in rate swaps

The delayed first run of TriOptima’s swap tear-up service, TriReduce, eliminated 7,880 euro-denominated interest rate swaps with a notional value of €420 billion – or about a fifth of the notional value of the credit derivatives market.

The first TriReduce run, conducted on April 25, took place after a four-month delay as documentation and technology hook-ups proved more troublesome than initially expected. But the triangulation technology designed by TriOptima, which nets out swaps among at least three swaps counterparties, saw 17 banks enter 17,359 euro swap trades, 9,968 of which were deemed as ‘eligible’, resulting in 79% of eligible trades being fully terminated.

The triangulation technology used by Stockholm-based TriOptima is more efficient than traditional bilateral tear-ups as banks often have large numbers of one-sided deals with one counterparty that may in turn have the opposite positions with a counterparty that makes up the triangle. Close-out amounts are always higher than the net value of the unwind proposal for each counterparty using its own valuation. This ensures no parties make trading losses through the use of TriReduce.

TriOptima estimated that participating banks freed €229 million in capital and achieved an operational cost saving of €8.75 million. TriReduce had previously torn up €250 billion in swaps notionals during two previous trials of the system.

TriOptima now plans to offer runs in US dollar and sterling swaps. The company has also received interest from banks interested in reducing their internal transactions.

Of the 17 banks that took part in the euro run, leading participants included Deutsche Bank, Barclays Bank, Lehman Brothers, HSBC, WestLB, Commerzbank, Rabobank and Toronto Dominion.

UK interdealer broker Icap bought a 30% stake in TriOptima in March last year.