Citadel becomes first buy-side to compress on TriOptima

The move is a sign that fund managers are also looking to reduce their derivatives exposures.

Hedge fund giant Citadel has become one of the first buy-side clients to use TriOptima’s swap compression service, as firms look to reduce their derivatives exposures.

The first client-cleared trade, processed by Citi, were included in the most recent SwapClear compression cycle for Canadian dollar (CAD) interest rate swaps. The entire CAD cycle included 18 participants who eliminated $1.38 trillion CAD in notional principal.

“We are pleased to participate in the inaugural triReduce cycle and to see TriOptima’s portfolio compression solutions become available to more market participants,” said John Naud, COO of global fixed income, Citadel.

“We have long supported buy side access to these solutions and look forward to the benefits that this will bring to the market.”

Citi has become one of the first clearing banks to expand access to compression services for its buy-side clients. Prior to this, only direct clearing members of SwapClear could compress their derivatives trades.

Portfolio compression, which enables banks to offset compatible trades and therefore wipe off trillions of dollars in notional volume, are increasingly being adopted by banks as a means to reduce exposures and post less capital.

This is now the first sign that asset managers and hedge funds are also looking to reduce their derivatives exposures.

“Including client-cleared trades increases the participant base in triReduce cycles and generates larger pools of eligible trades for compression, improving cycle efficiency and results for all participants. This also expands the benefits of risk, capital and operational cost reductions to a substantial new segment of market participants,” added Peter Weibel, CEO of triReduce.