ReMATCH, the CDS portfolio rebalancing and market risk mitigation service, announced today that it has introduced a new service to help its customers reduce their exposure to Quanto CDS risk.
The service, launched in September, has eliminated over $15billion of Quanto CDS risk for customers in its first three sessions.
Typically, Eurozone sovereign CDS contracts are denominated in US dollars to mitigate the strong correlation between the creditworthiness of the Eurozone countries and the embedded currency risk in the event of default. Quanto CDS presents a particular difficulty to trading portfolios because they are denominated in Euro and carry this correlation risk.
"Managing Quanto risk in today's volatile environment has become a major concern for banks and their clients. ReMATCH is always looking to offer relevant and timely solutions and we have seen strong interest in this new service," said Phil Perrott, the designer of the Quanto solution at ReMATCH.
ReMATCH's new service helps banks reduce their exposure to Quanto risk by using proprietary technology to build accurate mid-level curves and generate risk-reducing trades from the set of portfolio data supplied by participating banks, enabling them to reduce positions that they may otherwise have been unable to exit.
Since its launch in October 2009, ReMATCH has worked with the majority of major banks to reduce their exposure to CDS market risks in European and Latin American emerging market credit default swaps. ReMATCH is part of the Post Trade Risk and Information portfolio of businesses of ICAP plc (IAP.L).