Cme coupon blending fees

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  4. Related content. Removing the need for the original counterparty to participate in the compression exercise in order to terminate the trade dramatically expands the pool of compression eligible trades. Compression is now shorthand for many new initiatives that seek to reduce notionals concurrent with execution on a SEF or after execution, in the clearinghouse.

The tendency to identify all these recent activities as compression has created confusion in the market, in the regulatory community and in the press.

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Trading All Products Home. Featured Products. Open Interest can be a good measure of market uptake. But there is certainly some activity over at ERIS. This token is subsequently used to access restricted endpoints by passing it in the Authorization header.

While many of these new approaches are effective, multilateral risk-free compression is the most comprehensive compression solution with the most flexibility and the broadest reach. The characteristics of each approach are discussed below. In place of novation, compaction developed. Compaction is offered on execution platforms enabling the buyside to enter into new swaps that mirror existing cleared trades. The process facilitates the execution of trades that are equal and offsetting for netting recognition by the CCP.

The new mirrored trade is tagged to the existing one, which the CCP nets at the end of the day. Counterparties have always been able to negotiate early termination of transactions bilaterally. Two institutions identify a trade that they both want to exit and then negotiate and agree a close-out valuation of that trade. One counterparty pays the other based on the agreed valuation and the trade is terminated. While this allows for ad hoc scheduling and some flexibility, it can be time-consuming and it can be difficult to achieve consensus on valuations and risk neutrality.

This netting process enables individual members to offset perfectly matched trades in their own portfolios — trades with the same coupon and payment dates. Coupon blending is a recent extension of the netting process. Offered by the CCPs it enables individual clearing members to combine trades with the same end date but different coupons and reduce notional by putting on a replacement trade with a smaller notional that captures any residual cashflow or mark-to-market differences of the original trades.

While more effective than simple netting, coupon blending opportunities remain limited by the need for full cash flow neutrality. First, it includes the participation of multiple institutions submitting as many trades as possible in compression cycles. This increases the pool of trades available for termination. Second, by including the ability to set risk-based constraints that limit changes in risk profile, trades can be compressed that have similar but not identical payment dates.

Without the constraint of perfectly matched cashflows and payment dates for each participating entity, a multilateral risk constrained exercise results in significantly increased compression efficiency.

Third, each participant can terminate its trades at its own midmarket valuation rather than having to agree the valuation of each compressed trade with the counterparty. Multilateral compression cycles run according to a schedule. Currently TriOptima offers at least two cycles in various products and locations a week and modifies or adds to the schedule as requested by its clients. If you rewind to the days before clearing, the typical asset management transaction was done as a single trade, and then later on that day, the client would send a spreadsheet to his bank with instructions on how to allocate that trade across the 40 or so separate accounts he was trading for.

When the days of clearing came in, this had to be re-tooled to expedite the clearing process such that each trade hit its beneficial owner account immediately. Enter now the concept of standby clearing, which allows clients to execute the bunched order as a single trade again.

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For pre-deal credit checking, the client uses an FCM account that has been set up for presumably gross credit checking. The master trade gets cleared and held in this account at the DCO until instructions are received to assign it to the multiple accounts, which could also potentially span multiple FCMs. So where are those instructions managed? Well, this is where SEFs potentially come in. In theory, the client can communicate the allocation schedules to his FCM, which can then communicate them to the DCO for each trade. But if you are a client, you probably have multiple FCMs.

Coupon blending should hopefully be clear from a DCO perspective. The DCOs are the counterparty, so they can do whatever they want to trades as long as the risk and flows are equivalent. Trade porting also caught my eye. Back in when I first began working with clearing houses, we designed a solution for doing just this — taking a cleared leg of a trade and moving it to another clearing house.

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Moving a trade to another clearing house without executing more trades requires de-clearing it. To do this and maintain a zero risk position at the CCP, you need to also de-clear an equal and opposite trade. Further, as clearing houses have begun to do single-sided compression such as coupon blending, there is no guarantee any longer that there is an equal and opposite trade for every trade they have on the books.

In a simple example, if they are receivers of 10mm 3.


However, if they need to allocate equally to four accounts at the average price, how do you do that? The answer seems pretty simple: Perform a type of coupon blending on the original package of two trades and create four equal trades in each account. Of course, coupon blending creates two trades per account hence eight total , but this is just some of the gory detail that clients want addressed. So what does this have to do with SEF volumes?