Broker Tradition was the second of Europe's big market infrastructure players in a week to unveil new arms to a "compression" service on Monday, aiming to unclog bank balance sheets so they can back more trade in a credit-starved global currency market.
Settlement service CLS and platform operator NEX Group said last week their triReduce CLS FX Forward Compression Service had now compressed more than $1 trillion in notional value of trades, launching a second phase which allows offsetting in the same cycle to further cut banks' net exposure.
Both initiatives respond to problems banks have run into with funding for both their own trading and that done by their clients, an important driver in a reduction in volumes in the $5 trillion a day global currencies market. The compression process essentially looks systematically through the trading books of the world's largest banks for equivalent trades that can be cancelled out with the approval of the banks after the process has been run.
Cancelling those trades or offsetting them with new ones which reduce the notional value provides more space on banks' balance sheets to issue credit and trading lines to clients, particularly small ones who have been squeezed by the shortage in credit. Tradition said it was expanding its partnership with compression and analytics provider LMRKTS to include uncleared margin and had completed an initial test process with non-deliverable forwards earlier this month.