Technology provider launches product to reduce quanto CDS risk

Icap subsidiary ReMatch, has expanded its portfolio rebalancing service for credit default swaps to cover quanto CDS. The service has so far enabled dealers to eliminate $15 billion of quanto credit default swap risk since it was launched in September, according to the company.

Quanto risk arises when there is a correlation between credit risk and currency risk, such as when sovereign credit default swaps are denominated in the currency of the reference entity.

The ReMatch service takes data on several dealers’ positions and suggests trades that will allow them to reduce their risk.

The product was launched in 2009 and focused initially on emerging market names, and allowed dealers to reduce maturity mismatches in their portfolios. Later, the service was extended to western European sovereigns.