Credit Default SwapCompression

Compression of CDS Transactions means a process of compressing open interests (trade count, notional amount) on a gross basis without changing risk amount by simultaneously unwinding risk offsetting cross position of cleared CDS Transactions on one Clearing Participant.
Clearing Participants may mitigate their burden on trade management and reduce their leverage ratio through a compression of open interests.

In light of Clearing Participants’ needs, JSCC has introduced Compression schemes as follows and is making efforts to improve and maintain these schemes:

June 2015: Started Compression scheme
March 2016: Eased Compression Conditions (consent of counterparty to the original trade is no longer required)
                   Started Ad-Hoc Compression scheme

For trades related to Compression covered issues for which the Compression is applied, JSCC unwinds long trades and short trades of the same party if all of the following Matching Conditions are the same:

<Matching Condition>
・Series (only for Index CDS Transactions)
・Reference Entity (only for Single Name CDS Transactions)
・Fixed Rate
・Scheduled Termination Date
・Trade Group Code set out by CDS Clearing Participant or Clearing Customer with the Compression application

If the position related to the Clearing Contracts subject to the Compression of which all Matching Conditions are the same is net short (or net long), a trade with the notional amount equal to such net short (or net long) amount will be newly cleared.

JSCC determines the Compression date at each occasion and gives notice to the Clearing Participants in advance. The Compression date is 2 business days following the date of clearing, in principle, and frequency of Compression is approximately once a month, which may be increased or decreased considering needs, etc.

In addition to the standard Compression scheme as outlined above, JSCC has introduced the Ad-Hoc Compression scheme under which a Compression may be implemented at any time upon application made by a Clearing Participant or a Clearing Customer.
On each JSCC Business Day, if JSCC can confirm, with respect to a pair of trades with offsetting position (i.e., long vs. short) for which Ad-Hoc Compression is applied by a Clearing Participant or a Clearing Customer, that all of the following Matching Conditions are the same, the unwind becomes effective on the next business day following the date of application.

<Matching Condition>
・Series (only for Index CDS Transaction)
・Reference Entity (only for Single Name CDS Transaction)
・Fixed Rate
・Scheduled Termination Date
・Notional Amount