A group of Chicago firms are working on a new exchange that will offer interest rate swaps which trade as futures contracts rather than over-the-counter derivatives.
Getco, DRW Trading, Infinium Capital Management, Chicago Trading Company and Nico Trading are cooperating to form the Eris Exchange, named after the Greek god of discord and disharmony. The CME Group, which already offers hundreds of different contracts on commodity, energy, interest rate, metal, weather and other futures, will provide the central clearing facility for the interest rate swaps.
Because the products are structured as futures contracts, rather than traditional OTC derivatives, the exchange should be exempt from new rules in upcoming financial regulation. In addition, it may benefit from the departure of some derivatives and futures business from the major dealers in New York, some of whom will be required to spin off their trading desks.
Despite technically being futures, the Financial Times reported that the swaps will be basically the same as the OTC products they mimic. “People can trade something that is called a swap pursuant to the new rules and regulations or they can trade something that’s economically equivalent,” an anonymous source told the FT.
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