Compression activity has increased significantly over the past year, driven by new regulations and developments in clearing technology. In particular, the implementation of the Basel III leverage ratio has acted as a major incentive for banks to reduce the size of their legacy derivatives books. Developments in compression services – and especially the unlinking of cleared trades – have helped facilitate increased activity. Total interest rate derivatives notional outstanding has dropped as a result.
This report considers how market participants are using compression technology, and the impact this is having on the interest rate derivatives market.