LONDON & NEW YORK – Data and processing providers Markit and Creditex have released a trade compression platform designed to mitigate increasing operational risks in the credit default swap (CDS) markets.
The joint initiative will support commitments made by market participants to the Federal Reserve Bank of New York, addressing operational efficiency and risk mitigation by reducing the number of trades and the gross notional outstanding value of single-name credit default swaps held by dealers.
Developed by the International Swaps and Derivatives Association for five credit derivatives dealers, the platform employs a multi-lateral portfolio ‘compression’ or ‘tear-up’ process, scheduled for launch in the third quarter of 2008.
Its creators claim it improves on previous platforms by delivering better compression. It terminates existing trades and replaces them with a much-reduced number of trades, leaving market risk and cashflow profiles unaltered, and with less capital exposure.
Sunil Hirani, chief executive officer of Creditex, says: “We are pleased to be a part of a collaborative effort with Markit and major industry participants to strengthen the CDS market infrastructure. We believe this foundational effort will bring immediate and longer-term benefits to the CDS market, as highlighted and called for by market participants and regulators.”