BGC Brokers Capitalab, an entity within US brokerage, BGC Partners, announced today that it has successfully launched its multilateral portfolio compression service for FX Options, as well as for Interest Rate Caps and Floors.
In a company statement, the firm said that since June 2016, five FX Options compression runs have been executed in USD/JPY and EUR/USD, with the participation of five and seven major FX Option dealers respectively.
In the last three Interest Rate Options compression runs organised by Capitalab, a division of BGC Brokers, participants have also included Caps and Floors, together with Swaptions.
Combining products in the same compression cycle is proving to have a positive impact on efficiency. Caps and Floors i.e. options on Libor and Euribor forward rates are known to be capital intensive, because of their large notionals.
Capitalab is the first provider of multilateral portfolio compression for options. The company’s compression services are designed to allow participants to reduce their derivatives exposures while maintaining neutral portfolio risk, and to enable banks to make significant savings in capital and initial margin by reducing the outstanding gross notional of derivatives portfolios while optimizing the counterparty exposures.
Capitalab’s compression services are highly customisable and accommodate many constraints and models used by options traders, using a state of the art proprietary internal risk and valuation engine.
Our compression services enable clients to navigate the complexities of an evolving derivatives marketplace in a seamless manner.
Gavin Jackson, co-founder of Capitalab, commented: “With these milestones, we continue to empower clients with innovative services across a number of critical derivatives products, now including OTC FX Options and Interest Rate Caps and Floors.”
“Our compression services enable clients to navigate the complexities of an evolving derivatives marketplace in a seamless and effective manner, by preserving both capital and liquidity and minimising operational risk in this heightened regulatory environment,” added David Bachelier, co-founder of Capitalab.
The new launches follow Capitalab’s success in Interest Rate Swaptions, where it has so far compressed close to $3.5 trillion of gross notional. It has also seen substantial growth in the number of participants, approaching 25 institutions in total, which accounts for over 80 percent of the interbank volume 1 traded in the OTC market.