Commissioned Research
Co-Authored by REVAL and Eris Exchange
Changes in market structure resulting from the Dodd-Frank Act, Basel III, and general market conditions are resulting in the creation of innovative financial products across the derivatives market. These products need to be carefully considered in the context of U.S. hedge accounting rules which are primarily dictated by ASC 815. Eris Exchange interest rate swap futures (“Eris contracts”) have been designed to replicate the net cash flows associated with plain-vanilla, fully collateralized OTC interest rate swaps while retaining all of the operational and economic efficiencies of traditional futures contracts. This paper will conclude that the only driver of additional ineffectiveness relative to OTC interest rate swaps is price alignment interest. However, the impact will be minimal in most cases, and the resulting Net Income will be equivalent. To download the full document, Click Here.