Eris Exchange to Offer Rate-Swap Future With Margin to Match CME

Eris Exchange LLC plans to lower margin requirements on new interest-rate swap futures to match similar contracts CME Group Inc. (CME) started offering this week.

The Chicago-based exchange will give users margin savings of 40 percent to 80 percent as of Dec. 10 on standardized contracts that have quarterly effective dates, the company said in an e-mailed statement. CME Group, the world’s largest futures market, offers rate-swap futures that require two-day margin coverage compared with the five days it mandates for a cleared rate swap.

The move embraces the trend of swaps being transformed into futures contracts as Dodd-Frank Act regulations are set to kick in that will impose higher margin and capital for swaps users compared with futures, Neal Brady, chief executive officer of Eris, said in the statement, referring to energy and rate swaps that have been converted to futures.

“Faced with the increasing complexity and cost of trading over-the-counter swaps, market participants are discovering compelling value in the familiar regulatory framework and capital-efficient model of futures,” Brady said.

Five Chicago trading firms, Getco LLC, DRW Trading Group, Infinium Capital Management, Chicago Trading Co. and Nico Trading, teamed with CME Group in 2010 to create Eris Exchange, which guarantees its contracts with CME Group’s clearinghouse.

The Eris Exchange contracts are based on 2-, 5-, 10- and 30-year rate swaps and are cash settled upon delivery. The CME Group rate-swap futures are converted into swaps upon delivery. The margin for both rate-swap futures at Eris Exchange and CME Group can be offset with opposing Eurodollar, U.S. Treasury or rate-swap futures investors hold in CME Group’s clearinghouse.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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