Eris SOFR Swap Futures
Meeting the market's need for SOFR swap liquidity with a new CME futures contract
Delivers much-needed SOFR swap liquidity
The Alternative Reference Rate Committee (ARRC) has designated the Secured Overnight Financing Rate (SOFR) as the replacement for US LIBOR. However, transitioning $100bn daily in LIBOR swaps into a nascent SOFR market will require new sources of liquidity. Eris SOFR Swap Futures include both proprietary trading firms streaming two sided quotes, as well as swap dealers bilaterally block trading large trades and off-the-run contracts.
Replicates swaps for proper hedging
Eris SOFR Swap Futures replicate the cash flows of vanilla OTC SOFR overnight index swaps, including annual fixed payments at a pre-determined rate, and annual floating payments based on daily compounded SOFR. Unlike traditional futures, end users can hold Eris SOFR contracts until final maturity (up to 30 years), both avoiding forced rolls and enabling hedge accounting applications previously reserved for swaps.
Provides dealers simple layoffs for SOFR swaps
Dealer banks have long used interest rate futures to trade bulk duration cost-effectively. Eris SOFR Swap Futures continue this tradition, allowing dealers to trade spot-dated, outright SOFR swaps with their customers, then hedge that risk using IMM-dated Eris SOFR Swap Futures, accessing liquidity from listed market makers streaming two-sided prices in a central limit orderbook.
Brings transparency to the SOFR swap market
With the SOFR swap market still in its early stages, traders must rely on theoretical swap curves built from wide, indicative quotes for basis swaps. Eris SOFR Swap Futures not only provide swap users direct visibility to trade executable prices in a central limit order book, but also enable generation of real-time SOFR swap pricing data Eris Innovations distributes publicly.
Requires half the capital of swaps
Market volatility in March 2020 dramatically highlighted the importance of efficient margin treatment when capital becomes scarce. Eris SOFR Swap Futures offer the margin efficiencies of CME Group listed futures, including outright levels up to 60% lower than comparable cleared interest rate swaps, and margin offsets with CME SOFR Futures, Eurodollars and Treasury Futures.
Concentrates liquidity as swap risk standardizes
The market's move from quarterly LIBOR swaps to SOFR overnight index swaps significantly reduces hedgers' need for date customization. This fundamental change in swap risk provides a compelling opportunity for end users to adopt standardized products like Eris SOFR Swap Futures, which pool liquidity at quarterly IMM dates and auto-collapse offsetting positions rather than requiring extra steps for compression.
Available for trading now
Call your FCM or trade support team to get started. For risk & modeling purposes, Eris and CME distribute a suite of data files including discount factors, Eris SOFR settlement prices, and individual fixed and floating payment details (including accrual dates and SOFR compounding). Contact info@erisfutures.com for a guided tour.
Accessible globally on CME Globex
Eris SOFR Swap Futures offer the ease-of-access and operational simplicity of CME futures, enabling traders to view market data and place orders immediately using existing tools, including Bloomberg. CBOT exchange members trade at discounted rates, and all participants enjoy the benefits of CME Clearing trade processing features, including automated give-ups and average pricing.