ICE deal paves way for swap futures launch

Intercontinental Exchange is planning to launch swap futures contracts in Europe and the US after striking an agreement with Eris Exchange to use its methodology to construct the new products.

Intercontinental Exchange (ICE) is planning to launch swap futures contracts in Europe and the US after striking an agreement with Eris Exchange to use its methodology to construct the new products.

Swap futures have emerged as a viable and cost-effective alternative to trading interest rate swaps, which has become increasingly expensive due to new global market regulations.

The multi-year license agreement will allow ICE to list futures based on Eris’ patent-pending product design for constructing swap futures.

ICE will square up against US rival CME in the interest rate swap futures market, which has been growing in popularity since tough new market rules began coming into force.

The group has said it will first launch credit default swap futures based on the Markit CDX North American Investment Grade and High Yield indices, listed on ICE Futures US and cleared at ICE Clear US.

“These CDS futures contracts, to be launched in the first half of next year, will offer clients the regulatory certainty of futures without compromising traditional OTC characteristics, such as five-year tenor, spread and price-based quoting conventions, recognition of credit events and the inclusion of Price Alignment Interest,” ICE said in a statement.

The deal with Eris will allow ICE to use the methodology across all its exchanges which span the US, Europe and Asia.

ICE said it also plans to launch rate swap futures denominated in EUR and GBP, based on the product design of Eris’ US dollar-denominated Eris Standard Swap Futures and Eris Flex Swap Futures.

The addition of the interest rate swap futures will give ICE the chance to provide cross-margining opportunities to the buy-side, netting against rates products which recently made the transition over from Liffe.

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