Trade compression

The first three differ in scale; the mechanics are the same. A multilateral cycle finds offsets that no single pair of counterparties can see, which is why most volume runs through multilateral services.

The portfolio restructure is the firm's own form, described in the analysis notes for FX. Where a set of deals with the same value date nets to zero, or to an amount in one currency, the firm generates an equal-and-opposite deal with today's value date for each future-dated deal, and present-values any outstanding cash and pays it out. The equal-and-opposite deals are called tear-ups.

"Tear-up" also names the cancellation of a trade with no net P&L effect, which happens in migrations and book moves. The two uses agree: a tear-up is a cancellation that leaves the firm's value where it was.

A multilateral run, the most structured kind, proceeds in steps:

1. Submission. Each participant submits the trades it offers for compression, with its tolerances: how far its risk, its exposure to each counterparty and its cash flows may move.
2. Proposal. The provider computes a set of terminations, reductions and replacement trades that lowers gross notional while keeping every participant inside its tolerances.
3. Acceptance. Every participant reviews the proposal. It becomes binding only when all of them accept it; a single rejection voids the run.
4. Execution. The terminations and replacements take effect together at an agreed time, and each participant books them.

Only the last step changes trades. The earlier steps are the provider's workflow, and a firm that records them records them against the run, not against the trades.

A partial termination is an amendment of the same trade, not a new trade, and the run records the notional before and after.

The run therefore reads one set of trades and writes another, and the two overlap. A terminated trade is in the read set only, a reduced trade is in both, and a replacement is in the write set only. Trade group states why the two roles are not a partition.

The analysis notes record compression as one of the few activities that reaches every downstream area, with a P&L effect of zero.

Compression is therefore a trade event in the sense of trade links: it changes the trades it touches, cuts their versions and may require the counterparty to agree again.

A run is an operation that attaches to a set of trades as a whole. Under trade sets and trade groups the sets it reads and writes are trade groups, and the run is the identity they hang from. In practice the business refers to the run in its own right:

• When and who. The execution time, the person or process that accepted it, and any notes the desk attaches.
• The provider's reference. The cycle or run identifier the provider assigned, which is what the provider's statements and the counterparty's records quote.
• What it did. The trades it ended, reduced and created, so a report can answer "what did the March cycle do to this book".
• Traceability. A terminated trade's history must say why it ended, and a replacement trade's history must say where it came from. Both answer by naming the run.

Recording the run only as links between pairs of trades would lose all four: a multilateral run is many-to-many, and no pair carries the run's time, owner or reference.

This section is analysis rather than reported practice.

• The run. One row per run: its kind, its provider and the provider's reference, the execution time, who accepted it, and notes.
• Participation. One row per trade the run touched: the trade, its role, and for a partial termination the notional before and after. A trade takes part in a given run at most once; it may take part in several runs over its life.
• The trades. A terminated trade moves to its terminated state with compression as the activity, and the activity references the run. A replacement trade records the run as its origin.
• Created together. The run, its participation rows, the state changes, the amendments and the new trades are written in one transaction.
• Undo. An executed run is legally binding and is not undone. A run booked in error is reversed by a corrective act that references it.

• Do we record proposals? Recording submitted and proposed runs supports reconciliation against the provider; recording only executed runs is enough for the trade history.
• Tolerances. Whether the firm stores its submitted tolerances with the run, or only the result.
• Cross-entity runs. The analysis notes describe compression as identifying offsetting positions across entities. Whether a run may span the firm's own legal entities, and how each entity's books see it, is not settled.