TriOptima has been awarded this year’s Asia Risk Technology Award for LIBOR Solution of the Year in recognition of its triReduce benchmark conversion solution. Offering over-the-counter swap market participants with a powerful tool to help mitigate the risk and uncertainty stemming from benchmark reform, the TriOptima solution is on track to define itself as one of the most efficient solutions for benchmark risk.
The solution uses both compression and conversion, effectively enabling users to reduce their exposure to legacy benchmarks, while simultaneously growing their level of adoption of alternative risk-free rates.
TriOptima clients are able to take a proactive and iterative approach to compression and conversion while maintaining tight control over their market risk exposures, in addition to reducing their legacy benchmark exposures over time and so avoiding any unnecessary burden on their operational and technological resources.
TriOptima first launched a multilateral compression tool 20 years ago and has since maintained its leadership in this area of OTC derivative markets.
Speaking about the legacy of the triReduce solution and its impact, Vikash Rughani, business manager of triReduce, noted, “triReduce has worked with the industry to manage the transition to clearing, standardisation in credit default swap markets, as well as now in benchmark reform. triReduce has built a philosophy of delivering certainty achieved by ensuring that each firm participating in the service does so within their own degree of comfort and risk appetite and based solely on their own submitted data.”
The triReduce solution allows for a deep connectivity between users in different segments of the market, by connecting to every major clearing broker and futures commission merchant, who in turn make the platform available to all their clients.
Rughani further stated that “the importance of a broad and deep network of market participants can never be understated. Without this, it would simply not be possible to achieve the results we are seeing in our triReduce benchmark conversion exercises. At the end of the day, a cleared compression service is limited by one thing: the availability of natural offsets in the submitted population that enables it to deliver a cashflow-neutral result preserving the integrity of a clearing house.”
Almost two years ago, TriOptima embarked upon a journey to increase awareness of how the triReduce compression network can form the foundation for a robust and effective conversion mechanism for alternative benchmarks. Their existing compression activities were already positively contributing to their clients’ benchmark reform goals, but they wanted to show a future where each individual market participant could further build upon their baseline to perform their transition in a proactive and controlled manner.
The benchmark conversion is especially pertinent in today’s market.
“From the moment global regulators set about identifying alternative interest rate benchmarks, it became clear that an unprecedented period of change for global OTC swap markets was not far away,” Rughani said. “The challenge of transitioning an OTC swap portfolio with exposures beyond the 50 years is immense.”
Transitions to new benchmarks typically happens with very little pre-established liquidity figures, according to Rughani. However, a solution such as triReduce can help in establishing activity in these new benchmarks which can be incredibly useful for market participants.
Singapore’s Swap Offer Rate (SOR) market clearly shows the magnitude of the impact of the triReduce benchmark conversion solution, he said. TriOptima has noted an unprecedented take-up of its compression services since the Monetary Authority of Singapore laid out a plan for the market to reduce SOR benchmark exposures. The level of exposure reduction it has witnessed was only made possible with the proactive participation from the broad cross-section of participants in the market.
Over the past 12 months, TriOptima has seen its benchmark conversion functionality move from concept in its pilot phase to a full market launch, with the solution live for currencies with benchmarks subject to index cessation in both the London Clearing House and the Japan Securities Clearing Corporation. There are now plans for it to also be used for OTC interest rate swap trades cleared through the Chicago Mercantile Exchange.
TriOptima has clearly been busy over the past few years in further developing its solution and growing market participation within its network, both to meet the firm’s own objectives as well as to help ensure a level playing field for the marketplace overall.
“triReduce’s network of customers and experience is helping to extend conversion opportunities beyond the cleared world and into additional products that house exposure to legacy benchmarks subject to cessation,” Rughani said.
While some of these contracts will go through fallback implementation, “we expect the market to continue to seek further certainty by transitioning them onto alternative RFRs in a more formal sense once the necessary ecosystem of products is available and to the extent resources allow,” he added.