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SGX launches portfolio compression service for listed derivatives

THE Singapore Exchange (SGX) has launched a portfolio compression service for listed derivatives that is aimed at helping traders reduce the risks and capital costs of maintaining their portfolios.

The service, which was previously only available for over-the-counter (OTC) derivatives, was launched in collaboration with BGC Brokers LP, an entity within American financial services group BGC Partners.

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.

Yujun Lin, head of North Asia Equities, Derivatives at SGX, said: "Traders put out trades every day, and sometimes, these trades are off-setting. But the trades don't automatically net off, so over time, you build a bigger and bigger portfolio, which can turn out to be quite capital-intensive because you have to put up funds against that position."

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The compression service allows for an efficient and more automated way for participants to consolidate their portfolios and reduce the amount of trades in it, said Mr Lin.

In 2014, SGX was the first Asian exchange to run compression on OTC derivatives. From 2014 to 2017, the bourse ran compression exercises for its OTC financial derivatives, tearing up a total of US$135 billion, equivalent to 39 per cent of outstanding positions.