Dealer banks are accomplishing their withdrawal from FICC and the eurodollar necessities of dark leverage in the typical corporate fashion. For one, there is attrition as past derivatives trades simply runoff or mature. Second, banks have been engaging in what are called compression trades to an enormous degree, the money dealing equivalent of synergy. Finally, dealers have been studious and careful in not replacing many or any of those volume reductions.

The compression trend is revealing in many ways the internals at work in this eurodollar withdrawal. The vast majority of the processing in compression has been the dedicated work of one firm working in total obscurity and anonymity (outside, of course, those working deep inside FICC desks and taking part). And that is part of the ongoing problem in all things “dollar”, since it indicates yet more unseriousness on the part of economics and the commentary that is left wanting for it.

In the middle of August last year, a Swedish firm practically nobody has ever heard of issued a press release announcing that it had a primary hand in extinguishing half a quadrillion dollars in notional principal outstanding. That was, of course, a cumulative total dating back to the launch of TriOptima’s “compression service” in 2003. Nonetheless, that the banking system globally might be shed of anything approaching a quadrillion is cause for notice. [emphasis in original]

As you might expect, the “demand” for TriOptima’s compression services suddenly and sharply spiked around 2008. ICAP (TriOptima’s parent) reports that for calendar year 2007 there were $17.6 trillion in notional trades submitted and accepted for elimination; that included a negligible amount of credit default swaps. The following year, one that will never be associated with voluntary and orderly shifts in anything related to finance, there were a stunning $45.0 trillion in compression submissions, including, tellingly, then $2.5 trillion in CDS – as if banks were abruptly careful about such things when they clearly were not only the year before.

These numbers have only grown to the point that compression services offered through LCH and Euroclear are, again, far more than half a quadrillion by now in 2015. Compression trades, however, are just the “what” and speak nothing about the “why.” That has been left, as noted earlier today, as a great mystery to the mainstream that sees only the color of Janet Yellen’s fairy tale sky as its financial backdrop. The change in demand for compression starting in 2008 is all you really need to know, especially as the banks themselves have reported nothing but gross declines since then.

While this compression view tells us a great deal about how dealers are accomplishing their exit, there is more to it, creating an important window into an unappreciated (read: nobody has any idea this took place) shift in the internal eurodollar/wholesale mechanics themselves. Compression trading is not plug_and_play, though the literature assigned to describe it sometimes gives that impression. Far from it, banks have to endure sometimes radical alterations in order to complete their participation.

The reason for that is straightforward by what compression actually is. Dealer banks have duplicative and redundant positions in their derivative books, sometimes to the point of holding opposite positions at the same time.