The triBalance service lowers systemic risk by rebalancing counterparty credit exposure for OTC derivatives.
TriOptima, a Stockholm-based provider of post-trade infrastructure for the OTC derivatives market, has introduced triBalance, a service that mitigates risk concentration that emerges because credit exposure of cleared trades can no longer be netted against bilateral trades across different asset classes that are ineligible for clearing.
TriBalance reduces sources of contagion risk in both cleared and bilateral counterparty relationships by rebalancing counterparty credit risk exposure driven by future market movements. Reducing risk exposure should reduce initial margin requirements, regulatory capital, margin volatility, CVA hedging costs and close out risk while contributing to a decrease in systemic risk and a simplification of the CCP's default management process.
Tests of triBalance─using nine active OTC derivative dealers─reduced counterparty risk exposure in the participants' portfolios of cleared and uncleared trades by 33 percent.
"TriBalance reduces counterparty risk for individual institutions as well as CCPs and thus creates greater stability in the global financial system," says Peter Weibel, CEO of triReduce, TriOptima's multilateral compression service. "With regular triBalance cycles, CCPs and their clearing members will be better positioned to weather the impact of another crisis by proactively managing counterparty risk exposure, leading to a reduction of systemic risk, and also to a more efficient allocation of capital and collateral."