Goal  Manage key rate duration risk in MBS trading books, and/or MSR portfolios Customers can also position for a widening or narrowing in MBS yields vs swaps   Benefits Mitigate Spread Risk - Eris swap futures incorporate LIBOR swap risk, which can be more highly correlated to underlying exposures in MBS and MSR portfolios than Treasury products                 Trade the whole curve with no forced roll / delivery - Eris offers a wide array of available tenors - 2, 3, 4, 5, 7, 10, 12, 15, 20 and 30y underlying maturities with multiple effective dates to choose from Unlike other futures or TBAs, Eris positions can be left outstanding to the full underlying maturity, allowing for more flexibility in hedging                   Capital Pledge / Margin Savings - Prime brokers generally assess a capital pledge of 3-5% for cash Treasury shorts, and cleared swaps require initial margins based on a 5-7 day close out period Eris margins are 40-60% lower than cleared swaps (based on a 2 day close out period), and in most cases far lower than the capital pledge on Treasury shorts             Avoid a potential short squeeze in repo - A cash Treasury short position often creates negative carry between the fixed coupon paid on the underlying bond and the repo rate received Because the cash Treasury short position references a specific deliverable bond, hedgers are exposed to potentially significant cost increases should the Treasury “go special” in repo Eris futures settle to an orderbook driven curve, with no supply limitations, and therefore cannot be squeezed           Examples Buy MBS basis by selling 10y Eris, and buying TBA MBS; or hedge an investment in 5y DUS bonds by selling Eris 5y
Goal  Position for a steepening or flattening in the yield curve by buying or selling Eris contracts of different tenors Butterflies can also be traded to take advantage of outsized movement between the belly and the wings Benefits of Eris Most curve trades can easily be done as blocks in Eris, the $10mm notional threshold applies to the combined notional of the legs Margin offsets are also available between the different Eris legs Examples Buy Eris 5y, sell Eris 10y (steepener); buy Eris 5y, sell Eris 2y and 10y (receive the belly of a butterfly)
Goal  Substituting Eris as the LIBOR swap leg of a spread trade vs CBOT US Treasury futures allows users to position for widening or tightening in spreads Benefits of Eris Immediate futures vs futures portfolio margin offsets within CME Group, for a more capital efficient trade Streaming bids and offers in Central Limit Order Books for both legs provides for simple electronic execution using auto-spreaders, algos and other functions not available in OTC Examples Buy 10y UST future and sell 7y Eris (spread widener), 5y UST future vs 4y Eris, or 10y Ultra UST vs 10y Eris - similar duration to CTD Treasury
Some traders have been critical of listed products designed to replicate OTC derivatives, but exchanges are working hard to develop appropriate listed instruments. Joel Clark reports. Read the full article on The DESK here.
CME Group and Eris enter exclusive licensing deal to list Eris futures on CME in Q4 2018 CHICAGO, May 10, 2018 CME Group, the world's leading and most diverse derivatives marketplace, and Eris Exchange, a U.S.-based futures exchange group that offers swap futures as the leading alternative to traditional over-the-counter (OTC) swaps, today announced they have entered into an exclusive licensing agreement to list USD Eris Interest Rate Swap futures, which already clear at CME Clearing. Pending regulatory approval, Eris futures will be listed with and subject to the rules and regulations of CBOT, starting in the fourth quarter of 2018, and existing open interest in the contracts will be transferred to CME Group at that time. The Eris futures will trade alongside the MAC Swap Futures, bringing together the two leading interest rate swap futures on a single exchange venue. Until the migration in late 2018, Eris Swap Futures will remain listed at Eris Exchange and cleared at CME Clearing, where they are subject to margin offsets with CME Group's interest rate futures. "Given strong participation and growing demand for greater access to OTC swap markets, making Eris products available to trade on our global, electronic and liquid CME Globex platform will provide market participants with greater capital efficiencies", said Agha Mirza. CME Group's Global Head of Interest Rate Products. "We are committed to offering our customers a choice of products to best meet their evolving hedging needs, and we look forward to working with market participants in the coming months to ensure a smooth transition." "CME Group is the ideal platform to propel the next phase of growth of USD Eris Swap Futures", said Neal Brady, CEO of Eris Exchange. "The migration to CME Group provides Eris with access to expanded trading hours, thousands of international market participants, distribution through dozens of clearing firms and software providers, an enhanced set of portfolio margining opportunities, and the potential to offer options products in the future." "As a leading liquidity provider in global fixed income products, Virtu recently commenced streaming two-sided markets in Eris electronic order books", said Douglas Cifu, CEO of Virtu Financial, Inc, and Eris board member. "Pairing Eris deep and liquid markets with CME Group's global distribution is an exciting development that will further accelerate the adoption of Eris Swap Futures as a benchmark future for hedging LIBOR swap risk." For more information, please visit www.cmegroup.com/swapfutures
Extending Vela's Fixed Income initiative for market data and execution solutions to help tackle market fragmentation New York, Chicago, London April 25, 2018 Vela, a leading provider of trading and market access technology, and Eris Exchange (Eris), a U.S.-based CFTC registered futures exchange that offers Eris Swap Futures as the leading alternative to traditional over-the-counter (OTC) swaps, are pleased to announce the expansion of Vela's award-winning Direct Market Access (DMA) platform market coverage to include trading connectivity access to Eris Swap Futures. The addition of Eris to Vela's fully-managed DMA platform is part of an ongoing program to provide clients with access to an ever-increasing number of global trading destinations in the Fixed Income markets. Eris is also available as a feed handler supported by Vela's ticker plant, which provides normalized access to more than 200 venues across multiple regions and asset classes. Adding Eris to the DMA platform extends access across the Vela stack through its trading, data and risk APIs. Gerry Turner, Global Head of DMA Platform at Vela, said, "We are very pleased to add Eris to our growing list of trading venues to meet client demands. Our DMA platform is a modular component of the Vela stack and allows our clients to connect to Eris, and other global futures exchanges, through a fully provisioned market access solution to reduce the costs and complexity of accessing global liquidity. The addition of the Eris markets further supports our Fixed Income initiative to help clients increase opportunities across futures, swaps and treasury markets." "Vela's decision to offer DMA access to Eris Swap Futures is a great development for the markets", said Grant Oliver, Director of Business Development and Chief Operating Officer of FME, the London based trading company. "FME is a market maker for exchange traded products in the global Fixed Income markets, and we have long regarded swaps as our next frontier. With Vela's DMA access to Eris, we are excited to be entering this market, bringing valuable liquidity to an important market which Eris makes easy to access and simple to trade." Geoff Sharp, Managing Director and Head of Sales for Eris Exchange, said, "Enabling our users to connect to our exchange efficiently and cost effectively using Vela's DMA platform is an important step in making Eris accessible to a wider user base." He added, "Having an externally-supported and maintained DMA solution also allows us to focus on our product offering and client coverage."