LONDON Feb 27 Broker Tradition was the second
of Europe's big market infrastructure players in a week to
unveil new arms to a "compression" service on Monday, aiming to
unclog bank balance sheets so they can back more trade in a
credit-starved global currency market.
Settlement service CLS and platform operator NEX Group said
last week their triReduce CLS FX Forward Compression Service had
now compressed more than $1 trillion in notional value of
trades, launching a second phase which allows offsetting in the
same cycle to further cut banks' net exposure.
Both initiatives respond to problems banks have run into
with funding for both their own trading and that done by their
clients, an important driver in a reduction in volumes in the $5
trillion a day global currencies market.
The compression process essentially looks systematically
through the trading books of the world's largest banks for
equivalent trades that can be cancelled out with the approval of
the banks after the process has been run.
Cancelling those trades or offsetting them with new ones
which reduce the notional value provides more space on banks'
balance sheets to issue credit and trading lines to clients,
particularly small ones who have been squeezed by the shortage
Tradition said it was expanding its partnership with
compression and analytics provider LMRKTS to include uncleared
margin and had completed an initial test process with
non-deliverable forwards earlier this month.
"Bearing in mind the pressure on balance sheet and banks
ability to trade, there is a growing industry of enterprises
that want to help banks de-risk and deleverage," said
Tradition's global head of strategy and business development Dan
"All of these products are in the same theme. What will
probably happen is the banking community will test the
compression algos being used by each and conclude as to which
ones work best."
(Reporting by Patrick Graham, editing by Ed Osmond)