OSTTRA has completed a record compression run in the Mexican Peso (MXN) at CME Group, the post-trade specialist announced, adding that the milestone paves the way for a seamless F-TIIE transition.
According to the firm, the compression saw over MXN 26 trillion in notional value compressed, surpassing the previous record by more than 43%.
Market participants have been intensifying efforts to reduce their exposure to the 28-day TIIE ahead of the upcoming transition to the new F-TIIE reference rate at the end of December.
OSTTRA reduces notional exposures for cleared and non-cleared OTC derivatives
With this record compression, OSTTRA proves that the transition to the F-TIIE reference rate can be seamless. Powered by OSTTRA triReduce, the compression service reduces notional exposures and line items for both cleared and non-cleared over-the-counter (OTC) derivative trades.
OSTTRA enables firms to mitigate risk and manage the rising costs associated with their balance sheets amid escalating resource constraints.
Peter Lundgren, Head of Rates and Credit Compression at OSTTRA, said: “As the industry moves towards the F-TIIE transition, we are committed to ensuring a seamless switch for market participants. Our record compression run in MXN underscores the vital role that our services play in helping firms effectively reduce exposure, lower costs, and manage risk.”
OSTTRA MarkitWire also supports firms through the MXN cleared trade transitions, with the dress rehearsals starting in September and live events in November.
What is F-TIIE?
The upcoming transition to the new F-TIIE (Floating Tasa de Interés Interbancaria de Equilibrio) reference rate, set to take place at the end of December 2024, is a significant event in Mexico’s financial markets. This change is part of a broader effort to align the country with international best practices for benchmark interest rates.
The F-TIIE is a new benchmark rate designed to replace the traditional TIIE (Tasa de Interés Interbancaria de Equilibrio). The TIIE has been Mexico’s key reference rate for determining interest rates on various financial products, including loans, bonds, and derivatives, since 1995. However, the traditional TIIE has faced challenges related to its methodology, including reliance on estimates rather than actual transaction data.
The transition to F-TIIE is driven by the need for greater transparency, reliability, and accuracy in benchmark rates. F-TIIE will be based on actual transaction data rather than estimates, making it a more robust and credible indicator of market conditions. This change aligns with global reforms, such as the transition from LIBOR (London Interbank Offered Rate) to SOFR (Secured Overnight Financing Rate) in the U.S., which aimed to reduce the risks associated with benchmarks based on subjective estimates.
F-TIIE will be calculated based on actual interbank lending transactions, reflecting the true cost of borrowing in the market. The transition will affect a wide range of financial instruments, including loans, bonds, and derivatives that currently reference the TIIE. Market participants will need to update contracts, systems, and practices to accommodate the new rate. The Mexican financial authorities, including Banco de México, are working closely with financial institutions to ensure a smooth transition.
