Post on 22-Aug-2020
Copyright ©2011 Eris Exchange, LLC. All Rights Reserved.
Eris Exchange Offering Overview Transparency | Anonymity | Capital Efficiency
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 2
What is Eris Exchange?
Futures Exchange – USD Interest Rate Swap Futures • A known regulatory and operational framework
• Designated Contract Market (DCM) • Processed and margined as a futures contract
• Anonymous trades cleared through CME Clearing
• Futures contract replicates the cash flows associated with OTC interest rate swaps
• Highly capital efficient – up to 95% margin off-sets (offered in 2012)
• Distribution via 60+ CME Clearing Firms allows access to new swaps liquidity
The Product Offering (Patent Pending)
• Flexibility of equivalent plain vanilla OTC swaps
• Spot starting contracts remain outstanding until maturity
• Forward starting contracts with fixed coupons and IMM dates concentrate liquidity • IMM dated contracts eliminate the need for post-trade compression
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 3
• Traditional futures markets open to thousands of participants • No ISDA Agreements required; standard futures documentation Open Access
• Margin offsets with listed futures at CME Clearing • Will offer up to 95% savings on margin collateral Capital Efficiency
• Order book with streaming quotes for benchmark contracts • Liquidity providers with quoting requirements • Trade and unwind with any counterparty, 2-sided quotes
Liquidity & Anonymity
• Mirrors risk profile and cash flows associated with OTC swaps • Flexible contracts: any rate, any date OTC Swap Economics
• Easy to get started: trading screen provided by Eris Exchange • Open APIs, with leading ISVs integrating into Eris SwapBook • Utilizes existing clearing processes for post-trade allocations
Simple Integration
• Fixed coupon contracts eliminate the need for post-trade compression • No line-item proliferation with forward staring offering Compression
Value Proposition
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 4
Variation Margin
Up-front and Termination Payments
Interest Paid on
Collateral
Fixed and Floating
Payments
Futurizing Interest Rate Swaps Eris Exchange has “futurized” OTC interest rate swap exposure by consolidating multiple cash flow streams into a single daily cash flow in the form of margin payments and receipts
OTC IRS
Eris Interest Rate Swap Futures
Collateral Posted
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 5
Economics of Eris Futures Contracts
Index Price Swap NPV Accumulated Swap Payments Eris PAITM Settlement
Value Constant value which matches 100 price basis
Equivalent to NPV of an analogous OTC swap
Past fixed and floating swap payments; Calculated once daily
Accumulated interest paid on variation margin Accrues at Fed Funds Rate on NPV; Calculated once daily
Value used to facilitate bookkeeping through existing futures systems
100 + A + B - C = Eris Futures Price
100 + 1.25 + 0.12 - 0.001 = 101.369
$1,250,000 $120,000 $1,000
Example: 10-year $100mm Eris contract initiated 4 months ago (i.e., 100 contracts)
+ + - =
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Integrated World-Class Platforms
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Clearing, Margins &
Back-Office
Pricing Engine &
Post-Trade
Regulatory Surveillance
Services
Electronic Trade
Matching
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Trade Execution Alternatives
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Voice
Off the Run
Benchmark • All-to-All markets • Firm and live streaming quotes • Pre-trade credit checks • Anonymous trading • Click-and-done trade certainty • APIs and 3rd party front-ends • RFQs spawn spontaneous order
books • Any trader can respond to RFQs • Dedicated liquidity providers
Electronic
• Voice-brokered block trades • Trade into and out of
positions • Pre-clearing credit checks • Separate entry facility from
Eris SwapBook • Clearing firm access to risk
profile and controls • Facilitate spread trading
and unwinds
Exchange for Physical
Block Trades
Standard Fixed Rate
Exchange for Risk
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 8
Continuously Quoted Benchmark Contracts
Benefits: • Avoids contract proliferation and eliminates need
for post trade compression • Trades quoted in NPV terms • Several forward starting contracts with dedicated
market makers: streaming, executable, 2-way markets
• No upfront payments for off-market trades
Sample Featured Contract: • Effective Date: 12/21/2011 (December IMM Date) • Tenor: 10 years • Fixed Rate: 2.25%
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 9
• Voice executed trades are supported above the block level • Immediate credit check for all off exchange and brokered trades • Web interface to report Eris Exchange futures blocks, EFPs and EFRs • Block trading is allowed in Interest Rate Swap Futures and subject to
Eris Exchange minimum block size rules
Off-Exchange Execution
Initial Maturity
Minimum Block Size
Less than 5 Years $50M and above
5 Years or More $25M and above
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Significant Capital Efficiencies
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Capital Efficiency for Trading Firms • Upon DCM status, positions held in customer
segregated 4d accounts • Margin is calculated by CME using 5-day HVaR • Highly capital efficient; 85% to 95% margin off-sets
• U.S. Treasury futures and Eurodollar futures in 2012 • Settles to the CME Clearing Swap Curve
• Independent and neutral curve creation Capital Efficiency for FCMs • Trades are backed by flagship CME guarantee fund
• No additional guarantee fund contributions • No “LSOC” segregation requirements
Maturity Pay Fixed Margin
Received Fixed
Margin
2yr 0.4% 0.6% 5yr 1.6% 2.6%
10yr 4.5% 6.8%
Margin levels shown as a % of notional as of October 26, 2011
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Leverages CME Clearing’s Post-Trade Tools Pre-Trade, Post-Trade and Allocations • Participants can utilize existing futures give-up framework and
agreements used for more than 20% of US futures volume • Allocate trades using CME Give Up System • Manage agreements with the FIA Electronic Give-Up System
(EGUS) Average Pricing • Clearing firms, brokers and asset managers can take multiple
fills across different prices and re-price them to a single level • CME Average Pricing System (APS)
CME Clearing Margin Tools • Clearing firms and customers can independently verify initial
margin amounts on actual and simulated portfolios • CME CORE and CME PC RATES applications
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Pre-Trade
Post-Trade
Allocations
Average Pricing
Trade 1
Trade 2
Trade 3
Trade 4
MARGIN TOOLS
• CME CORE • CME PC RATES
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Access Provided by CME Clearing Firms • Over 60 CME Clearing members are eligible to support participants • FCMs must maintain minimum capital of $50 million in order to clear • FCMs use the same HVaR margin methodology and curve for CME IRS • FCMs in bold registered to clear and have certified or are in the process of certifying
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ABN AMRO CLEARING CHICAGO LLC FCSTONE LLC MF GLOBAL INC RBC CAPITAL MARKETS LLC
ADM INVESTOR SERVICES INC FOREX CAPITAL MARKETS LLC MITSUBISHI UFJ SECURITIES USA INC RBS SECURITIES INC
ALLIANZ GLOBAL INVESTORS DIST. LLC GAIN CAPITAL GROUP LLC MIZUHO SECURITIES USA INC RJ OBRIEN ASSOCIATES LLC
AMERIPRISE FINANCIAL SERVICES INC GLOBAL FUTURES & FOREX LTD MORGAN KEEGAN & COMPANY INC ROSENTHAL COLLINS GROUP LLC
BARCLAYS CAPITAL INC GOLDMAN SACHS & CO MORGAN STANLEY & CO INCORPORATED SANFORD C BERNSTEIN & CO LLC
BGC FINANCIAL LP GOLDMAN SACHS EXEC. & CLEARING LP MORGAN STANLEY SMITH BARNEY LLC SANTANDER INVESTMENT SEC. INC
BNP PARIBAS COMMODITY FUTURES INC HSBC SECURITIES USA INC NATIXIS SECURITIES NORTH AMERICA INC STATE STREET GLOBAL MARKETS
BNP PARIBAS SECURITIES CORP INSTINET LLC NEUBERGER BERMAN LLC STEPHENS
BNY MELLON CLEARING LLC INTERACTIVE BROKERS LLC NEWEDGE USA LLC TD AMERITRADE INC
CANTOR FITZGERALD & CO JP MORGAN CLEARING CORP NOMURA SECURITIES INTERNATIONAL INC TENCO INC
CIBC WORLD MARKETS CORP JP MORGAN FUTURES INC OANDA CORPORATION TIMBER HILL LLC
CITADEL SECURITIES LLC JP MORGAN SECURITIES LLC OPPENHEIMER & CO INC TRADESTATION SECURITIES INC
CITIGROUP GLOBAL MARKETS INC LPL FINANCIAL CORPORATION OPTIONSXPRESS INC UBS FINANCIAL SERVICES INC
CREDIT SUISSE SECURITIES (USA) LLC MACQUARIE FUTURES USA INC PRUDENTIAL BACHE COMMODITIES LLC UBS SECURITIES LLC
DAIWA CAPITAL MARKETS AMERICA INC MERRILL LYNCH PIERCE FENNER & SMITH RAND FINANCIAL SERVICES INC WELLS FARGO ADVISORS LLC
DEUTSCHE BANK SECURITIES INC MERRILL LYNCH PRO. CLEARING CORP RAYMOND JAMES & ASSOCIATES INC WELLS FARGO SECURITIES LLC
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Eris Exchange fees are tiered; each futures contract is $1M face Eris Exchange fees are charged per side (both the buyer and the seller) per contract and include clearing services fees provided by CME Clearing CME Eurodollar futures fee equivalent comparison CME Globex + clearing customer fees are $1.22 / contract
Eris Exchange Fees
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Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48
Eris Exchange fees are comparable to benchmark futures
Fees Per Side Tenor Fee ($) Fees (implied per annum bps) 2 Year $10 0.06 3 Year $18 0.06 5 Year $18 0.04 7 Year $24 0.04 10 Year $24 0.03 30 Year $48 0.02
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 14
Eris Exchange Contacts
Neal Brady Chief Executive Officer neal.brady@erisfutures.com (312) 253-9056 Christopher Rodriguez Chief Sales and Corp. Dev. Officer christopher.rodriguez@erisfutures.com (212) 561-5472
Michael Riddle Chief Operating Officer michael.riddle@erisfutures.com (312) 626-2699
Kevin Wolf MD and Head of Product Development kevin.wolf@erisfutures.com (212) 231-7859
Eris Exchange Offices Chicago Office 311 South Wacker, Suite 950 Chicago, IL 60606 (888) 587-2699
New York Office 111 Broadway, Suite 805 New York, NY 10006 (212) 561-5472
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Appendix
• Eris Exchange Product Details • Trades Like a Swap • Clears as a Future
• Initial Margin Level Details – Curve Trades • Unique Product Features
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Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 16
Trades Like a Swap… Swap
Quoting Conventions • Par trades: Rate • Unwinds and Contracts with Pre-defined Fixed Rates: NPV • Pay fixed: Bid / Buy • Receive fixed: Offer / Sell
Trade Terms
• Effective Date: Any good business day out to 10 years • Termination Date: Up to 30 years following the Effective Date • Fixed Payments: Semi-annual, 30/360 • Floating Payments: Quarterly, Actual/360 • Adjustment to Period End Dates • Contract stays open until maturity • New York and London Calendars; London only for LIBOR fixing
Index • 3 Month LIBOR
Market Sensitivity • Same DV01 as an OTC swap
Return on Posted Margin • Overnight Fed Funds; analogous to interest earned on collateral posted under a Credit Support Annex (CSA)
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Booking Value for Par Swap • NPV 0 = 100 • Futures price captures all contract cash flows
Cash Flows Prior to Termination Date
• Initial margin based on SPAN; moving to HVAR • Variation margin transfer; Daily settlement by CME Clearing
Terminal Value • Accumulated fixed and floating payments • Price Alignment Interest over life of the swap (Eris PAITM)
Documentation • Simple one-time account set-up documentation; No ISDAs
Unwind Counterparty • All market participants
Counterparty Credit Risk • CME Clearing acts as counterparty on all trades
Market Access • Any market participant through 60+ active FCMs at CME
Capital Efficiency • Upon receiving DCM approval: Margin offsets with other CME futures reducing initial margin and variation margin
Credit Checks • Real-time credit checks; No Fails
Lot Size • 1 contract represents $1,000,000 notional
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…Clears as a Future Future
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Initial Margin Level Details – Curve Trades
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Tenor Effective Mark-to-market / Portfolio Description Steepener Flattener
2's - 5's Spot Curve Trade $1,170,887 $1,654,359
2's - 10's Spot Curve Trade $4,116,427 $5,210,587
2's - 30's Spot Curve Trade $13,578,313 $10,481,951
5's - 10's Spot Curve Trade $2,564,398 $2,251,626
5's - 30's Spot Curve Trade $10,107,261 $7,842,135
10's - 30's Spot Curve Trade $6,629,243 $4,608,011
Tenor Effective Mark-to-market / Portfolio Description Pay Receive 2 Spot Par $402,120 $596,600
5 Spot Par $1,597,710 $ 2,567,390
10 Spot Par $4,505,690 $6,790,560
30 Spot Par $14,809,110 $15,078,140
Margin levels as of October 26, 2011
Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.
Unique Product Features
• Futures contracts from inception to maturity; contracts are never considered an OTC swap
• Contracts remain open until maturity; no quarterly rolls
• Contracts are created dynamically upon execution of a new trade
• Z codes are unique identifiers created for each trade
• Credit controls occur pre-trade and there are no fails in the order book and/or RFQ functions
• “Click-and-Done” means that trades are cleared concurrently with execution
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Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 20
Eris Exchange Legal Notices
Version Created 2011-10-30
Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures. Eris Exchange and the Eris Logo are registered trademarks of Eris Exchange, LLC. Eris SwapBook, Eris BlockBox, and Eris PAI are trademarks of Eris Exchange, LLC. The information within this document has been compiled by Eris Exchange for general purposes only. Eris Exchange assumes no responsibility for any errors or omissions. Additionally, all examples in this document are hypothetical situations, used for explanation purposes only, and should not be considered investment advice, legal advice, or the results of actual market experience. The information contained within this document does not constitute legal or investment advice. All matters pertaining to rules and specifications herein are made subject to and are superseded by official Eris Exchange rules. Current rules should be consulted in all cases concerning contract specifications. Copyright © 2011 Eris Exchange LLC. All rights reserved.