TriOptima executes more CDS tear-ups

TriOptima, the Stockholm-based company specialising in multilateral swaps terminations, conducted a further round of the US Dow Jones CDX credit default swap (CDS) index tear-ups yesterday, tearing up $650 billion in notional with a mark-to-market value of nearly $5 billion. The platform, called triReduce, aims to reduce gross positions in a portfolio while maintaining the same net risk position to reduce operational risks and costs.

Susan Hinko, the company’s managing director in New York, said subscribers to triReduce had been reconciling trades for two weeks in advance of yesterday’s cycle and expected approximately 25% of the terminated trades to be related to non-investment-grade indexes referencing Delphi, the troubled Michigan-based auto parts manufacturer.

Hinko also said TriOptima was offering a reconciliation process for distressed single-name CDSs – a pre-default Delphi tear-up is due to take place next week and another one will take place in the event of default.

In addition, a tear-up of the European iTraxx index trades is scheduled to take place on October 11.

The previous triReduce termination cycle on September 8 saw CDS contracts with a notional value of $127 billion torn up, with the total figure in the year-to-date topping $1.23 trillion. The tear-up cycles were cited as playing an important role in investment banks’ efforts to reduce the backlog of unconfirmed CDS trades in an open letter to the Federal Reserve Bank of New York by 14 leading dealers on Tuesday.