Benchmark Contracts

>> Rolling Eris Exchange Forward Starting Benchmarks

Benchmark Contracts

Liquidity and Streaming, Executable Quotes in Benchmark Contracts

Eris Exchange features several benchmark spot and forward starting contracts in the Central Limit Order book with dedicated market makers providing streaming, executable, 2-sided quotes. The featured contracts are the subset of available structures that Eris Exchange expects to be traded most actively by participants on the Exchange.

Spot starting contracts will be quoted and traded in par rate terms. Forward starting contracts without preset fixed rates, such as the Eris leg of an invoice spread, will also be quoted in par rate terms.

Forward contracts with preset fixed rates, such as the IMM dated forward starting contracts, will be quoted in NPV terms. If there is a meaningful move in the par rate from the pre-determined fixed rate, users may be interested in having streaming, 2 sided markets on contracts with different fixed rates. Eris Exchange will monitor market behavior for this type of activity and interest, and will allow benchmark contracts to change accordingly.

In addition to the benchmark contracts, the Eris Exchange platform allows users to initiate both spot and forward starting contracts through an all-to-all Request for Quote (“RFQ”).

Spot Starting Benchmark Swap Futures:

Underlying Swap Tenor	2, 5, 10 years
Effective Dates	T+2 London business days
Schedule for Contract Featuring	On all trading days, spot starting contracts will be quoted as benchmarks
Contract Terms	Standard contract terms, similar to other Eris contracts Price Alignment Interest will be assessed beginning on the first date that a contract is traded.
Quoting/Trading Protocol	Par rate will be used for trade execution
Contract Short Name	IRSF USD “X”Y, where “X” represents the underlying tenor Example: IRSF USD 5Y would represent a spot starting 5Y contract
Z-Code Application	Subsequent to trade execution. a new Z-Code will be assigned for each unique combination of fixed rate, Effective Date, and Cash Flow Alignment Date

IMM Date Forward Starting Swap Futures:

Underlying Swap Tenor	2, 5, 10 years
Effective Dates	Quarterly IMM Dates (3^rd Wednesday of each March, June, September, December)
Schedule for Contract Featuring	Active quoting in contracts with an Effective Date equal to the 2^nd IMM date will commence on the first trading day of the upcoming IMM contract effective month Active quoting in contracts will stop approximately 1 week following the Effective Date
Contract Terms	Standard contract terms, similar to other Eris contracts Price Alignment Interest will be assessed beginning on the first date that a contract is traded. Each contract will have a fixed rate that is approximately equivalent to the forward rate when the contract is first featured in Eris SwapBook^TM, rounded to the nearest quarter point (e.g. a 2.32% forward rate will result in a featured contract with a fixed rate of 2.25%) Eris Exchange expects that this contract will remain as the featured contract through the Effective Date Fixed and floating reset dates, and Maturity Date will not necessarily match quarterly IMM dates
Quoting/Trading Protocol	NPV will be used for trade execution
Contract Short Name	YYMMDD-YYMMDD-C.CCC where the first date string represents the Effective Date, the second string represents the Cash Flow Alignment Date, and the 3^rd string represents the fixed rate Example: “120620-220620-2.000” would represent an instrument with an Effective Date of June 20, 2012, Cash Flow Alignment Date of June 20, 2022, and a fixed rate of 2.000%
Z-Code Application	There will be one Z-Code assigned for each featured contract following the first trade that occurs in that contract

Invoice Spreads with Eris Forward Interest Rate Swap Futures:

Underlying Swap Tenor	10 years
Effective Dates	Last Delivery Date of corresponding Treasury Futures contract
Schedule for Contract Featuring	Active quoting in contracts with Effective Dates equal to the 2^nd invoice spread date will commence on the first trading day of the upcoming expiry month Active quoting in contracts will stop approximately 1 week following the Effective Date
Contract Terms	Cash Flow Alignment Date and Reset Dates will match the terms of the corresponding Cheapest-to-Deliver U.S. Treasury securities Price Alignment Interest will be assessed beginning on the first date that a contract is traded. Other contract terms (i.e., day-counts, holiday calendars, etc.) will match standard conventions of other Eris contracts If the CTD changes prior to the Effective Date, Eris Exchange will feature an additional contract corresponding to the terms of the new CTD
Quoting/Trading Protocol	Par rate will be used for trade execution
Contract Short Name	YYMMDD-YYMMDD where the first date string represents the Effective Date and the second string represents the Cash Flow Alignment Date Example: “120629-190215” would represent an instrument with an Effective Date of June 29, 2012 and a Cash Flow Alignment Date of Feb 15, 2019
Z-Code Application	A Z-Code will be assigned for each unique fixed rate subsequent to trade execution

User interface

Included below are examples of screen prints for spot and forward starting benchmark interest rate swap futures. All quotes are for one contract, which is $1,000,000 notional.

For contracts with pre-determined fixed rates, the instruments are quoted as the net present value of all future fixed and floating amounts, from the perspective of the Fixed Rate Payer. The NPV represents an adjustment to the Eris Futures Price at which the trade is executed.

For Forward-Starting Swap Futures, historical coupons are equal to zero, so the Eris Futures Price at execution is determined solely by the traded NPV and Eris PAI.

For contracts that trade in NPV, the minimum tick sizes per contract are:

Less than 7 years to Maturity: $50
7 years to 20 years to Maturity: $100
20 years or greater to Maturity: $200

Screen Print #1: 10 year spot starting interest rate swap future; Trades on par rate

Screen Print #2: 10 year forward starting interest rate swap future with a pre-determined fixed rate. It trades on NPV and currently has a positive value from the perspective of the fixed rate payer
Effective Date: 06/20/2012
Cash Flow Alignment Date: 06/20/2022
Fixed Rate: 2.000%

Screen Print #3: Eris leg of a 10 year invoice spread trade. Although this leg is forward starting, because it does not have a fixed coupon, it is quoted in par rate terms.
Effective Date: 06/29/2012
Cash Flow Alignment Date: 02/15/2019

Margin Considerations

HVaR margining results in enhanced efficiencies for Initial Margin calculations for stand-alone contracts and more complex portfolios.

Below are indicative Initial Margin requirements as a percent of notional for the contracts that Eris Exchange currently features[1]:

Instrument Type	Tenor	Effective Date	Reset Day of Month	Cash Flow Alignment Date	Fixed Rate	Initial Margin: Pay Fixed	Initial Margin: Receive Fixed
Spot	2 year	T+2	T+2		Par Rate	0.3%	0.5%
Spot	5 year	T+2	T+2		Par Rate	1.2%	1.9%
Spot	10 year	T+2	T+2		Par Rate	3.0%	4.2%
June IMM	2 year	06/20/2012	20^th	06/20/2014	0.500%	0.4%	0.6%
June IMM	5 year	06/20/2012	20^th	06/20/2017	1.250%	1.3%	2.0%
June IMM	10 year	06/20/2012	20^th	06/20/2022	2.000%	3.1%	4.3%
June Invoice	10 year	06/29/2012	15^th	02/15/2019	Par Rate	1.9%	2.7%

Note the following regarding CME’s HVaR margin methodology:

The HVaR margining process is dynamic and allows for daily updating, and offsets amongst Eris interest rate swap futures
Direction of the trade will impact the Initial Margin. This is demonstrated in the table above
No distinction between Initial Margin and Maintenance Margin

Eris Exchange expects that margin offsets will be available beginning in April 2012. This will allow for significantly reduced margin requirements for portfolios including Eris contracts and other futures contracts cleared at CME. The exact benefit will depend on correlation determinations made by CME and will depend on market conditions at the time. Current margin benefit estimates include:

Eris contracts hedged with Eurodollar futures: up to 95%
Eris contracts hedged with Treasury futures: up to 85%

[1] Initial Margin values determined by CME provided tools as of 03/01/12. Values are subject to change.