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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

Overview  While Eris contracts can be left outstanding to underlying maturity, end users often roll positions quarterly as calendar spreads to stay in the most actively quoted current contract, or to maintain a constant underlying tenor A calendar spread involves the execution of a buy and sell for two contracts with the same underlying tenor but with Effective Dates one quarter apart from each other How to Trade Eris Calendar Spreads Eris contracts can be rolled in a similar fashion to UST Futures.  Like outright trades, Eris calendar spreads can be traded electronically, or as a block where the combined notional exceeds 100 contracts ($10mm notional) Listed Spreads: Trade combined package electronically Single Block Trade: Trade combined package by voice Legging: Trading the buy and sell legs independently introduces the risk of prices moving between fills, but this may be mitigated by utilizing 3rd party ISV autospreading tools Conventions & Key Concepts Buy The Spread:  Buying the FRONT contract and selling the BACK contract, ie rolling a short position (paying fixed) to the next active contract Sell The Spread:  Selling the FRONT contract and buying the BACK contract, ie rolling a long position (receiving fixed) to the next active contract Typically, calendar spreads will begin quoting during the last week of the month preceding the Effective Date of the front contract, ending three business days prior to the Effective Date The quoted spread will be the net of the front leg price minus the back leg price After the trade, the individual prices will be determined by adding or subtracting the spread from the anchor leg via the CME Group's Standard Method (the SLEDS method is also available) Example: 5Y Eris Implied vs Listed Spreads To roll an existing long position (receiving fixed), a customer would sell the front contract and buy the back contract selling the spread, either individually, or as a package

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