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~~ ” Markit and Creditex today announced the launch of an industry-wide portfolio compression platform for the credit derivative market with the first live runs completed successfully for single name credit default swaps (CDS) in the North American and European markets…
…Philip Olesen, Managing Director of Credit Trading at UBS Investment Bank, said: “We are pleased with the progress of this initiative. The new risk-neutral compression algorithm is a critical improvement which eliminates the need for involvement by front-office traders, thereby increasing the frequency of compression runs and dealer participation rates.”
The new portfolio compression methodology designed by Markit and Creditex is unique in that it reduces operational risk while leaving market risk profiles unchanged. This is achieved by terminating existing trades and replacing them with a smaller number of new replacement trades that carry the same risk profile and cash flows as the initial portfolio but have less capital exposure.
The portfolio compression process will be run on a regular basis to compress the most actively traded single name CDS contracts systematically across all major sectors. This will reduce the total gross notional outstanding of CDS contracts in the $62 trillion market to a significantly smaller net amount… ” ~~
Keep compressing guys… tightening the ship… right…
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