TriOptima reconciling 50% of collateralised OTC derivatives

TriResolve was established in 2007 to address collateral management issues, helping to uncover discrepancies in trade populations or evaluations that can lead to collateral disputes. In an interview with Risk in June, the company said that its matching rate for trades is above 90%.

Usage of TriResolve has risen markedly during 2008 - from three million trades (counting both sides of the transaction) per week in January to 16 million last week.

Trade reconciliation has become an increasingly important issue over the past 18 months. In a July 31 letter to Federal Reserve Bank of New York, the Operations Management Group (OMG), an industry body representing major OTC derivatives dealers, committed to weekly portfolio reconciliation by the end of this year.

“The benefits of portfolio reconciliation are significant in terms of mitigating risk and reducing operational challenges,” said Eraj Shirvani, head of European credit at Credit Suisse and chairman of the International Swaps and Derivatives Association. “It is critical that the industry works together to implement reconciliation capabilities more widely.”

Henrik Nilsson, TriOptima's head of business development, told Risk that services such as TriResolve had helped firms get a grip on counterparty risk. “They can exchange collateral to offset counterparty risks, which was not possible a year ago,” he said. “When a firm declares bankruptcy, the effect is not quite so catastrophic – collateral has already been exchanged. This was not the case when Bear Stearns collapsed in March – firms’ books were not in order, so the collateral posted was not in line with the overall exposure.”

Meanwhile, TriOptima held special tear-up cycles on September 23 for single name credit default swaps referencing Freddie Mac, Fannie Mae, Lehman Brothers and Canadian forestry company Tembec Industries. TriOptima also held termination cycles last month for index tranche trades linked to the four companies.

See also: CDS volumes fall in H1 2008