TriOptima launches oil swap tear-up service

TriOptima, the Stockholm-based financial technology firm specialising in an over-the-counter swap 'tear-up' service, has extended its capabilities to oil swaps.

The company has already set up an early trade termination service called TriReduce for interest rate swaps launched in April 2003, and credit default swaps in November 2004.

Oil swaps are fixed versus futures contracts in Brent or West Texas Intermediate, often with a one-year maturity on a specified calendar year. The notional figure averages 18,000 barrels.

The first run of oil swap terminations was conducted this month. Société Générale, Barclays Capital, Deutsche Bank, EDF Energy Merchants, Electrabel and one other bank cancelled a total of 1,888 swaps with a mark-to-market value of $3.87 billion that had no further use in their trading portfolios.

The objective is to reduce gross positions in a portfolio while maintaining the same approximate net risk position, thus reducing operational risk, operational cost and counterparty credit exposures.

Jerome Malka, head of energy trading at SG, said the TriReduce cycle managed to unwind 80% of the deals submitted.

The operational savings are typically several hundred euros per trade, and credit risk savings can be around €2,000 per trade, depending on the kind of mitigation the institution has in place, said TriOptima chief executive Brian Meeses.

“Previously, swap tear-ups were bilateral,” said Meese, who points out that multi-lateral termination allows many different counterparties to pool transactions. “Counterparties can net their exposures against each other in the termination, which is much more efficient."