Eris SOFR Swap Futures show strong early volume as firms prepare to
migrate from Libor to SOFR
November 16, 2020 – CHICAGO – Eris Innovations, an intellectual property licensing company that
partners with global financial exchanges to develop futures products, today announced the successful
closing of a $2 million investment round. The announcement follows CME Group’s October 5 launch of
Eris SOFR Swap Futures (Eris SOFR), which have averaged more than 3,900 contracts traded per day in
November.
Each of the new investors is affiliated with proprietary trading firms committed to make markets in Eris
SOFR, including Arb Trading Group, Arclight Securities, Clear Capital Group, DV Trading, Sumo and
TransMarket Group. These firms join a group of existing equity holders and affiliates that includes
BlueCrest Capital Management, Chicago Trading Company, DRW, Nico Trading, and Virtu Financial.
“DV Trading sees Eris SOFR as an excellent tool for trading short-end rates, where repo market activity,
crisis-driven Federal Reserve actions and the imminent adoption of SOFR contribute to near-term trading
opportunities,” said Jared Vegosen, Co-Founder of DV Trading. “Our decision to invest in Eris Innovations
was a natural extension of our early involvement in trading Eris SOFR.”
Eris SOFR Swap Futures have exceeded the transaction count of OTC SOFR Overnight Index Swaps
(OIS) for November month-to-date, according to Clarus Financial Technology data, and account for more
than 23% of SOFR swap and swap futures notional value traded in tenors from 1-3 years.
“Eris SOFR addresses the need for additional swap liquidity as market participants look to SOFR as an
alternative to Libor,” said Michael Riddle, CEO of Eris Innovations. “Eris SOFR’s initial traction in the 1-,
2- and 3-year tenors is directly attributable to tight markets streamed by these leading futures proprietary
trading firms, and this investment further increases their alignment in making Eris SOFR successful.”
Eris SOFR Swap Futures are cash-settled futures contracts that replicate the risk exposure of a standard
SOFR OIS transaction, and extend the liquidity of CME Group’s industry-leading SOFR futures complex
out to ten years.
View live markets for Eris SOFR at erisfutures.com/live . Eris Innovations is an intellectual property
licensing company that partners with global financial exchanges to develop futures products based on its
patented product design, the Eris Methodology. Trademarks of Eris Innovations and/or its affiliates
include Eris, Eris Innovations and Eris Methodology. For more information, visit erisfutures.com or follow
us on LinkedIn.
Eris Swap Futures are ideal hedging instruments for end users. Our modular video tutorials are set up to walk you through the essentials of what you need to know to get started trading. Feel free to watch the videos in sequence, or skip ahead to whatever is relevant.
Eris 101: Why Trade Eris Over Other Products (YouTube)
Eris 102: Ticker Conventions & Where to Find the Contracts (YouTube)
Eris 103: Understanding Eris Prices & Preparing to Trade (YouTube)
Eris 104: Determining Your Trade & Entering Orders (YouTube)
Eris 105: Settlement / Post Trade Tax & Accounting Considerations (YouTube)
View the presentation materials (without the video) here
In the fourth trade note of his ongoing Strategy Series, Thomas Browne explains how the transition from periodic (1, 3, 6 month) LIBOR fixings to daily SOFR removes the reset risk typically associated with hedging with futures. Browne then makes the case that standardized futures are better suited to hedging in SOFR given less need for customization, concentration of liquidity, and lower margins, among other benefits.
Read the white paper here
In this third trade note of his ongoing Strategy Series, Thomas Browne provides a useful comparison of SOFR vs LIBOR as underlying indices, and background on the upcoming transition.
The paper highlights the benefits of the overnight index and its suitability for standardization in futures.
Finally, Browne offers an overview of the new Eris SOFR Swap Futures, and guidance on how to transition out of existing LIBOR exposure into SOFR ahead of the forced fallback using the new contracts.
Read the white paper here
In the fourth trade note of his ongoing Strategy Series, Thomas Browne explains how the transition from periodic (1, 3, 6 month) LIBOR fixings to daily SOFR removes the reset risk typically associated with hedging with futures. Browne then makes the case that standardized futures are better suited to hedging in SOFR given less need for customization, concentration of liquidity, and lower margins, among other benefits.
Read the white paper here
In this third trade note of his ongoing Strategy Series, Thomas Browne provides a useful comparison of SOFR vs LIBOR as underlying indices, and background on the upcoming transition.
The paper highlights the benefits of the overnight index and its suitability for standardization in futures.
Finally, Browne offers an overview of the new Eris SOFR Swap Futures, and guidance on how to transition out of existing LIBOR exposure into SOFR ahead of the forced fallback using the new contracts.
Read the white paper here
In an independently written article for the Association for Financial Professionals' Quarterly Magazine, Ira Kawaller provides a useful introduction to swap futures, specifically focusing on Eris as a hedging tool for smaller end users with less access to the OTC market. Kawaller is founder and principal of Derivatives Litigation Services, and an expert in derivatives and hedge accounting.
Read the article here
View Ira Kawaller's bio here
Eris Swap Futures are ideal hedging instruments for end users. Our modular video tutorials are set up to walk you through the essentials of what you need to know to get started trading. Feel free to watch the videos in sequence, or skip ahead to whatever is relevant.
Eris 101: Why Trade Eris Over Other Products (YouTube)
Eris 102: Ticker Conventions & Where to Find the Contracts (YouTube)
Eris 103: Understanding Eris Prices & Preparing to Trade (YouTube)
Eris 104: Determining Your Trade & Entering Orders (YouTube)
Eris 105: Settlement / Post Trade Tax & Accounting Considerations (YouTube)
View the presentation materials (without the video) here
Background
The Federally backed Main Street Lending Program (MSLP) will facilitate up to $600BN in LIBOR based loans for small and medium sized businesses
Eligible loans under the program will be offered at LIBOR +300 basis points, and will range from $500K to $25MM notional, amortizing over 4 years
Why Hedge?
3M LIBOR has fluctuated within an 80bp range between March and April, and uncertainty for the future of the index remains with the impending shift to SOFR
By comparison, 3-4y swap rates recently hit all time lows (0.30-0.35%) having fallen over 130bps from the start of the year
Borrowers can remove uncertainty and lock in fixed rate financing for 4 years at record lows by paying fixed and receiving floating on a swap hedge.
Eris Swap Futures Are Well Suited to Hedging MSLP Loans
The clearing mandate and recent volatility have made traditional OTC interest rate swaps much more expensive for smaller and midsize firms:
Increased margin/collateral requirements post crisis
Uncleared swaps may incur significant credit charges
Minimum FCM fees for cleared swaps of $10-20K per month
Eris Swap Futures offer the exact cash flow economics of OTC swaps, but with less than ½ the required margin upfront, much lower clearing fees, and no credit charge
Borrowers can more efficiently lock-in their all-in financing costs by selling 2, 3, and 4-year Eris Swap Futures (paying fixed and receiving floating) in $100K notional increments mirroring the underlying details of the loan
The example below shows the net borrowing cost on the first $10MM notional of a $15MM loan out to 3 years for a firm that expects to prepay at that time. Increased interest expense due to rising 3M LIBOR will be offset by a gain on the hedge, keeping the effective borrowing cost on that portion of the loan fixed at 3.30%. If the borrower wanted to hedge the full notional, it could sell 50 4Y, 50 3Y, and 50 2Y contracts to replicate the amortizing profile
To Get Started
For those already familiar with trading futures, contact your futures broker
Otherwise, contact info@erisfutures.com
Click here to read more about Eris contract details
