A little-noticed recent step by a US broker could be a giant leap towards a swaps-for-all utopia dreamt up by a pair of Nobel Prize winners two decades ago.
That is the hope harboured by Interactive Brokers and Eris Exchange, whose futures replicating the cashflows of interest rate swaps became tradable via the electronic broker in January.
Read the full article on Risk.net here.
Read the full story on the Financial Times here.
CME Group will add to its suite of interest rate products by listing Eris USD swap futures in the fourth quarter of this year. The deal means Eris products will be listed on two of the biggest futures exchanges in the US, through CME and Intercontinental Exchange.
Read the full article on The TRADE here.
Eris continues to build market participation ahead of Q4 migration to CME Group
CHICAGO, June 5, 2018 /PRNewswire/
Eris Exchange (Eris), a US-based futures exchange group offering swap futures as the leading exchange-based alternative to over-the-counter swaps, announced today that BlueCrest Capital Management and Virtu Financial have joined Eris as equity partners. As part of the partnerships, both BlueCrest and Virtu have commenced trading Eris Swap Futures. BlueCrest is trading Eris to manage and express interest rate risk, and Virtu has started streaming two-sided electronic markets. Additionally, Doug Cifu, Virtu CEO has joined the Eris Board of Directors.
Today's news follows CME Group and Eris' recent announcement that Eris USD Swap Futures will migrate from Eris Exchange to CME Group in Q4 2018. Eris Swap Futures will be available for trading on CME Globex, expanding distribution to CME Group's global client franchise.
"BlueCrest started trading Eris Swap Futures earlier this year, and we are excited to partner with Eris to support this emerging pool of liquidity for expressing interest rate swap risk", said Michael Platt, CEO and Co-Founder of BlueCrest Capital Management, the global private investment partnership. "We plan to increase our participation leading up to the Q4 migration of Eris Swap Futures to CME Group, which we expect to further accelerate the growth of this innovative, capital-efficient product."
"Eris is on the leading edge of innovation in fixed income markets, providing global traders and investors a product to express their interest rate views, and providing hedgers an instrument to manage long term rate exposure", said Doug Cifu, CEO of Virtu Financial. "Virtu, as a global leader in electronic market making and execution services, is uniquely positioned to contribute to and benefit from Eris' growth."
"BlueCrest is a recognized, global leader in interest rate swap trading among buy-side firms, and Virtu has an impressive track record in providing liquidity in fixed income markets", said Neal Brady, CEO of Eris Exchange. "Bringing both BlueCrest and Virtu on board as committed partners positions Eris Swap Futures to achieve another level of liquidity and volume growth ahead of our migration to CME Group later this year."
For further information, please contact your Eris representative.
Eris contracts match the cash flow economics of plain vanilla OTC LIBOR swapsLike OTC swaps - Eris incorporates a series of fixed and floating payments discounted at OIS, as well as a price alignment interest component, which allows Eris to avoid the convexity bias of other futuresThough Eris cash flows are netted into a single payment based on changes in the settlement price, the individual components can be broken out according to the Eris MethodologyThe stylized example below shows how the cash flows of an OTC swap would be reflected in an Eris contract of the same terms as they cross over a fixed/float payment date Download our cash flow equivalence whitepaper here.
NOTE - Eris is not tax or accounting advisor, you should check with your own auditors to confirm proper treatment
Eris Swap Futures can receive a high degree of effectiveness as a cash flow or fair value hedge, given minimal date mismatch and the ability to hold contracts to underlying maturity
There are Eris contracts that expire nearly every 3 months for the next 30 years
There is no forced quarterly roll for Eris contracts, positions do not have to be terminated at the effective date. Duration / price sensitivity will decline over the life of the trade, like the hedged item
Request the Eris hedge accounting case studies here.
NOTE - Eris is not tax or accounting advisor, you should check with your own auditors to confirm proper treatment
Eris swap futures can be treated as traditional 1256 contracts (and marked to market)
However, Eris contracts may qualify for an exemption from 1256 treatment as a “hedging transaction†like OTC swaps (with gains and losses realized as fixed/float amounts are paid over time)
Eris contracts that have passed the underlying effective date are available for trading until underlying maturity
Contracts can be traded as blocks or via anonymous all to all Request For Market
Goal
Position for, or hedge against large movements in rates which could create meaningful changes in DV01
Benefits of Eris
Eris Swap Futures are convex instruments, meaning the DV01 will change as rates rise or fall. Eurodollar futures have a constant DV01 that does not change
By hedging cash instruments or other securities that have convexity with Eris swap futures, traders may capture some of the DV01 movement in the underlying
Alternatively, some traders may wish to take a view on convexity by trading Eris against a strip or bundle of Eurodollars
Futures vs futures margin offsets between Eris and Eurodollars make this a capital efficient trade
Examples
Long convexity - buy 4y Eris contract, sell 4y Eurodollar strip. Short convexity - sell 3y Eris contract, buy 3y Eurodollar strip
