TriOptima tear-ups cut CDS notional by $9 trillion

Swedish technology company TriOptima eliminated $9 trillion in notional outstanding from the credit default swap (CDS) market in the first half of 2009, the firm announced on July 9.

TriOptima ran 30 compression cycles through its triReduce service for a range of CDS products including indexes (US, Europe, Asia and emerging markets), tranches and single-name trades. According to Susan Hinko, global head of industry relations at the firm, it plans to hold 20-25 cycles in the second half of the year, although that could increase depending on demand.

Having also eliminated $30.2 trillion in notional in 2008, triReduce has made a significant dent in reducing risk in the CDS market. According to the Bank of International Settlements, the notional outstanding size of the CDS market was $57.3 trillion at the end of June 2008.

But reported trades to the Depository Trust and Clearing Corporation's Trade Information Warehouse - believed to provide an accurate current snapshot - showed the notional outstanding had fallen to $25.4 trillion as of July 3. There are limits on how much more risk can be cut through triReduce, however.

"While we will continue to offer CDS compression cycles, the notional terminated may slow down to the overall reduction in outstandings achieved through triReduce last year and this year," said Ulf Andersson, business manager for triReduce.

Nonetheless, Hinko said there will always be demand for compression cycles, particularly when credit activity rebounds. "There is still more that can be done for single names. You won't have the same rate of compression we have now, but there are still opportunities. If trading picks up, there will be new sources of demand for compression," she said.

TriOptima will release its latest figures for the compression of interest rate swaps next week. Last year it held 30 cycles in 18 currencies, eliminating $13.6 trillion outstanding notional from the market, but Hinko said the cycles held in the first half of 2009 have already exceeded that total.

See also: Trillions of dollars of derivatives notional torn up since June

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