CBOE and the Eris Exchange have entered into a strategic partnership to develop new solutions addressing regulatory reforms that could drive much over-the-counter derivatives activity towards exchange-traded alternatives.
As part of the agreement, which will also see the CBOE take an equity stake in Eris, the two also aim to enhance distribution of the Eris interest rate swap futures and related market data.
New regulatory reform, including Basel III capital and leverage requirements, European swap clearing and trading mandates and mandatory margining of uncleared swaps, are driving up the cost of OTC derivatives and forcing some users towards listed alternatives.
“Our partnership with Eris demonstrates CBOE’s ongoing focus on leveraging our product innovation expertise to capitalize on the continuing convergence of the OTC and listed marketplaces,” said Edward Tilly, CEO of CBOE Holdings.
The agreement follows a similar tie-up between CBOE and CurveGlobal, the LSE-owned derivatives exchange that is planning a range of listed interest rate products.
“Our partnership with Eris, like our partnership in CurveGlobal, positions CBOE to tap into that opportunity by bringing new capital efficiencies and exchange-traded products to the interest rate marketplace,” Tilly said in a statement.
CBOE already works closely with Eris, having applied its methodology to S&P500 Variance Futures that are currently traded on the CBOE Futures Exchange.
“Our alliance with CBOE provides Eris with growth capital for strategic initiatives and aggressive product expansion,” said Neal Brady, CEO and co-founder of Eris, in a statement.
”We’re thrilled to collaborate with CBOE on new product, market data and index initiatives, and to provide access to Eris products to CBOE’s global trading community.”
US dollar-denominated Eris interest rate swap futures have garnered open interest of 159,000 contracts outstanding. Around two-thirds of that represents standard contracts attracting two-day futures margin, while the remaining third is in Flexes form, attracting higher five-day HVaR futures margin that equivalent to margin associated with OTC exposures.
Eris interest rate swap methodology is also offered in euro contracts by the InterContinental Exchange and South African rand contracts at Johannesburg’s JSE, while TMX/Montreal Exchange will launch similar products in September.
