A mild boost to swap futures volumes on Eris Exchange since Monday’s OTC derivatives clearing deadline for buy-side firms is minor compared to long-term expectations, the venue said.
Trading on Monday, Tuesday and Wednesday on Eris Exchanged netted 7,320 contracts building on last week’s record full-week volume of 14,291 contracts, according to the venue’s own figures.
On Monday 10 June, most US buy-side firms were captured by the category II deadline for mandatory swaps clearing under the Dodd-Frank Act.
Last week’s growth may also be inspired by Eris lowering the notional amount for swap futures by 90% – to US$100,000 from US$1 million, driven by buy-side demand for increased granularity of trade allocations.
Although Monday’s swaps clearing deadline has driven some growth on Eris Exchange, Kevin Wolf, chief business and product development officer for the venue, said buy-side firms would not shift volumes to swap futures overnight.
“We didn’t expect the 10 June clearing compliance date to drive an immediate spike in volume,” he told theTRADEnews.com. “However, activity on Eris Exchange has increased over the last two weeks and we expect this trend to continue as the dust settles on clearing swaps, and users begin to focus more on alternatives and efficiency.”
Wolf said the growth in standardised products would be driven by the cost of clearing, which would now be higher for institutional investors.
“Not many trading decisions in June will be based on cost minimisation. Right now, buy-side firms want to ensure they can meet clearing requirements for OTC swaps before they further adopt swap futures and focus on reducing explicit and implicit costs,” Wolf said.
Eris and competing US futures exchanges operated by the CME Group and IntercontinentalExchange last year began offering futures contracts that mimic the economic effects of OTC derivatives as rules under the US Dodd-Frank Act took hold.
Futures are subject to one-day value at risk (VaR) calculations, while swaps must meet five-day VaR, which makes them more expensive to trade.