NEX, CLS Extend FX Compression Service to Third Parties

The triReduce CLS FX service, which provides risk mitigation services that began in 2015, is now available to third parties that settle with CLS. The service is also now live with prime brokers, bringing a larger network to the system and reducing notional exposure. Third parties—mostly buy-side firms—that settle with CLS will have to give a compression proposal before processing the results through CLS settlement members they work with.

Michael Modlock, global head of sales and relationship at NEX’s triReduce, says that expanding the reach of the service means greater growth.

“The growth has been very good, and all the large dealers are on board,” Modlock says. “As the service evolved we engaged with the prime-brokerage businesses, which represent an important segment of the market, and now the addition of third-party settlement members further enhances the network effect.”

He adds that by extending to dealers, brokers and third parties, the pool of compressible swaps is increased, which in turn generates gains in efficiency. The service has so far compressed $6 trillion notional to date and has in the past 6 months added 6 more bank clients. Both companies said the FX market is interested in the service as they seek to reduce risks in connection to capital standards under Basel III.

CLS head of product management Adam Levine says extending the service to third parties can also entice CLS members to participate more.

“We provide the ability for anyone that settles with CLS to have the option to compress their eligible FX transactions,” Levine says. “We think there is a lot of opportunity for growth as clients can increase their participation now that the eligible participant network is larger.”

Levine adds that the service has been well-received by the bank community to date, and that it has finished testing with two further institutions.