SGX unveils portfolio compression service for listed derivatives

The risk-reduction technique enables participants to lower capital costs and reduce open positions of derivatives.

The Singapore Exchange (SGX) has rolled out what is said to be Asia’s first portfolio compression service from over-the-counter (OTC) products to listed derivatives, an announcement revealed.

The service was launched in collaboration with Capitalab, a division of BGC Brokers LP, an entity within the BGC Partners, Inc. group of companies.

According to Michael Syn, SGX’s head of derivatives, the local bourse and Capitalab are responding to market participants’ need for an efficient service to optimise their outstanding positions with increased capital and cost savings.

“In 2014, SGX was the first Asian exchange to run compression on OTC derivatives,” he said.

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SGX is offering portfolio compression of the listed Nikkei suite of contracts comprising the SGX Nikkei 225 Index Options, SGX Nikkei 225 Index Futures and SGX Mini Nikkei 225 Index Futures.

“Portfolio compression is a risk-reduction technique that enables participants to lower capital costs and reduce open positions of derivatives that carry some of the highest cost of capital per unit of notional exposure in the industry,” SGX explained, adding that the service has been widely used by participants in the OTC derivatives markets.

During the period 2014-2017, SGX ran compression exercises for its OTC financial derivatives tearing up a total of $182.89b (US$135b), which is equivalent to 39% of outstanding positions.