After a record-breaking year in which Quantile grew its core business and evolved its offering to meet clients’ needs and a shifting regulatory backdrop, Quantile is Global Capital’s Global Compression Service of the Year.
Quantile was formed five years ago by CEO Andrew Williams and Chairman Stephen O’Connor to help banks rebalance and reduce their counterparty risk, increase the efficiency and liquidity of markets, improve returns for clients and make the financial system safer.
The company offers two services – margin optimisation, which was launched in Q1 2017 and interest rate compression, which was launched in Q4 2017. The optimisation service is designed to reduce counterparty risk and the costs associated with initial margin. It works by analysing the risk of transactions between participants and generating new market risk neutral trades that reduce risk and release capital. Quantile’s compression service eliminates on average more than $10 trillion of OTC gross notional per month by unwinding existing trades and rebuilding the risk using standardised hedges, thereby reducing gross notional and standardising remaining positions in the same process.
The last year has been one of record-breaking success for Quantile as it continued to grow its core services. It has compressed more than $200 trillion of notional to date, with $100 trillion in 2019 alone. It regularly achieves the largest compression runs at LCH and has executed the largest Euro and US dollar compression runs since regulatory reporting of compression activities began in January 2018.
“We have 35 clients live with our LCH compression service. We started this business by building a critical mass of the G15 banks and now we are expanding the service to regional banks and institutional market participants globally,” says O’Connor. In 2019 it extended its geographic reach by opening a New York office, with new European headquarters following next year in Amsterdam along with a Japanese operation to complement an extension in venue coverage at JSCC.
Despite its growth, Quantile, which employs around 60 people, retains the ethos and innovative approach of a start-up, forming tight working groups with clients in order to develop new products while its technology platform allows for fast and scalable implementation. “We’re a young company so built everything from scratch straight into AWS [Amazon Web Services]. All of our infrastructure is built in the cloud which has helped us scale as we’ve grown and more recently enabled us to seamlessly transition to working from home,” explains Williams.
During the peak in market volatility in March, Quantile experienced a drop off in volumes as clients were adjusting to new ways of working under lockdown. But it bounced back in dramatic fashion. “A backlog built up that made April one of the largest months for our business. We executed two of the biggest runs to date, a USD run reducing $7.2 trillion, and a EUR run reducing $4.7 trillion,” says Williams.
In 2020, the company expanded its offering beyond its core margin optimisation and trade compression services. “We are evolving compression beyond reducing trading costs and notional to help banks increase efficiency and clean up their books,” says Williams.
Its efforts have focused along three lines. It has helped its clients with the transition from Libor to risk-free rates by adding new alternative benchmark trades as risk replacements, resulting in ‘notionally-efficient’ portfolios that are backed by risk-free rates. As part of this Quantile supports alternative indexes for all G3 currencies, including SOFR for USD, ESTR for EUR and SONIA for GBP.
“We’ve been at the forefront of adapting our service to the new regulatory environment,” says O’Connor. Its compression and risk rebalancing runs will soon be compatible with the new standardised approach to counterparty credit risk (SA-CCR), offering a ‘forward optimisation’ of exposures that can be tailored to an individual client’s go-live date.
It is also the only provider that is working to optimise reset risk within the compression process. “In doing so, we can deliver superior compression performance and enhanced risk reduction,” says Williams. “By intelligently widening reset constraints, participants can expect improved notional efficiency of up to 30%. Other processes add FRAs to hedge reset risk, which are not compatible with risk-free rates and do not compress efficiently with the swaps they are hedging. At Quantile, we’re working on better utilising the existing trades to hedge reset risk – which is more efficient than adding new trades – both today and in the future RFR world.”
Quantile reduces risk in financial markets, delivering advanced strategies that rebalances and reduces counterparty risk between market participants, increasing the efficiency and liquidity of markets, improving returns for clients and making the financial system safer.
Since launching its first products in 2017, Quantile has eliminated over $200 trillion of gross notional of OTC derivatives through compression and billions of dollars in margin through its counterparty risk reduction service.
Clients include the G15 top tier global banks, regional banks and other large institutional market participants. Quantile is headquartered in London, with offices in New York, Singapore and Dublin. In 2021, Quantile will be opening European headquarters in Amsterdam.