October 31, 2011

It looks like a swap, it flies like a swap, what can it be? It’s Eris

Today Eris received CFTC approval to be a Designated Contract Market for their new Interest Rate Swap futures. To go after the ISDA based OTC contract market, Eris has designed these contracts to get as close to the equivalent ISDA OTC IRS as possible, but still have some of the development in the pipeline. Full details are in this PDF from Eris or go to their website. Duration

  • Futures: 3M to 2 years
  • Eris: 30 years, with up to 10 years forward start, so a 40 year curve
Start date
  • Futures: IMM dates
  • Eris: Any good business date
Offsets with ISDA IRS
  • Futures: Given the IMM dates & duration, not so much
  • Eris: In 2012, they hope to achieve 85% to 95% offset against CME interest rate futures
Processing model:
  • Eris: Anonymous trading plus integrated clearing at CME
  • ISDA: A variety of trading methods, with voluntary electronic confirmation at MarkitSERV plus clearing available from SwapClear, CME, SGX and others
  • ISDA IRS: many
  • Eris: 3M LIBOR
Initial Margin algorithm
  • Futures: SPAN / PCA
  • Eris: SPAN initially, moving to historic Value at Risk, similar to SwapClear & CME for ISDA IRS
  • ISDA: 5 year historic VaR at SwapClear, CME and IDCG (soon I think)
Contract netting
  • ISDA IRS: Not so easy, no standard coupon, tear up service from TriOptima uses risk equivalent algorithm
  • Eris: Standard coupon, with continuous netting into an open position
  • ISDA: Brokers, phone, Single Dealer Platforms, soon to be SEFs and OTFs, not anonymous at the moment
  • Eris: ErisExchange, anonymous
  • ISDA: Master plus CSA and electronic confirmation
  • Eris: Exchange regulations only
  • Eris: Fixed leg 6M, Float leg  3M, daily margin calls, starts any good business day
  • ISDA: Coupons 1M to 12M (or zero coupon) on either leg, daily margin calls, plus optional stubs at either end; also compounding interest
Notional schedule:
  • Eris: Fixed notional
  • ISDA: Static, amortising, accreting or roller coaster


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