Best Post-Trade Services Provider: CLS TriOptima

As regulatory initiatives hit, cost has become one of the biggest drivers of business decisions and market structure development trends. In response to the shifts, CLS partnered TriOptima to launch the triReduce CLS Forward FX Compression Service in October 2015, introducing post-trade compression to the FX derivatives space.

The multilateral service helps to reduce operational risks, costs and counterparty credit risk while improving capital efficiency.

Less than a year old, CLS TriOptima's work has led to the firm receiving the Best Post-Trade Services Provider award at the 13th FX Week e-FX awards.

"TriOptima has a huge amount of experience in compression, as we have been in the business since 2003. Our strong infrastructure and robust legal framework are key to the success of the service," says Peter Weibel, chief executive of TriOptima's multilateral compression service, triReduce.

For TriOptima, when the service first started, a level of education about how compression works was needed for the FX divisions of the banks in particular
Alan Marquard, CLS Group

"One of the things about moving into a new asset class like FX with compression is that the compression process is reasonably mature in rates and CDS, but banks do not have one synthesised platform and process for dealing with different asset classes. So I think, for TriOptima, when the service first started, a level of education about how compression works was needed for the FX divisions of the banks in particular," says Alan Marquard, chief strategy and development officer and general counsel at CLS Group.

The work has paid off. Today, the service has cut more than $112 billion in notional exposure for major dealers. Additionally, trading volumes for FX forwards increased by 43% between 2010 and 2013, ahead of FX swaps and spot FX trading, according to CLS and TriOptima.

The number of participating banks in the monthly cycles has increased, from an initial six to 14. Eight additional firms are currently testing, and the venture expects to have more than 30 regular participants in the coming months as more interested parties are waiting in the pipeline.

Growth curve

"The FX compression service is in its initial growth phase. We are focusing on getting more institutions participating in the service, but I think that growth is going really well. The other aspect of growth is getting more trades from the participants' various books submitted to the service. That, equally, is going well. As with any new service, there is a growth curve and we are firmly on it," Marquard adds.

The goal is now to expand the service beyond CLS members. There is also work being done on a solution with clients that will include prime brokerage trades, which CLS and TriOptima believe will increase the overall compression opportunities.

"Market participants are required to regularly assess if their trade portfolios can be compressed; i.e. if their portfolios are balanced between bought and sold trades, so offsetting positions can be identified and finally compressed. In that sense, our service helps the industry to comply with this regulatory requirement," says TriOptima's Weibel.