The following article about Trading Technologies' plans to connect to Eris Exchange originally appeared on TT's Trade Talk blog on October 18, 2012. TT's connection is expected to launch in the first half of 2013. Swaps: Theyâre in Our Future More than two years after the DoddâFrank Act was passed, itâs surprising how much still remains unsettled with regard to what new regulations may be implemented and how the industry will be transformed. One of the few changes that seems certain is that over-the-counter (OTC) swaps will move to a centrally cleared model. What remains to be seen is which model for trading and clearing interest rate swaps will ultimately win out. Will these swaps remain custom OTC contracts traded via a swap execution facility (SEF)? Or will the industry move toward an exchange model where swap-like futures are traded on a designated contract market? Siding with Futures It seems more and more as if the futures model will ultimately win out. Exchange-traded interest rate swap futures have margin efficiencies that the OTC model canât match. A number of strategies that make use of OTC swaps today may no longer be profitable once these swap positions are subject to margin requirements, an issue which the substitution of swap futures for OTC contracts substantially alleviates. The trend toward either the âswaps as futuresâ or âfutures on swaps" model is noted by research firms such as TABB Group, but is also reinforced by moves the exchanges are making. For example, the Chicago Mercantile Exchange (CME) recently announced plans to list deliverable interest rate swap futures, and IntercontinentalExchange (ICE) is transitioning its OTC energy contracts to futures. Making the Swap: Eris Exchange on TT For these reasons, I was very excited last month when we announced our plans to provide connectivity to Eris Exchange. Eris has created products that capture the best of both worlds. Eris contracts are futures, which means they bring with them margin requirements substantially lower than comparable OTC contractsâup to 95 percent lower for accounts with highly correlated positions. At the same time, Eris products are designed to replicate the cash flows of OTC swaps while also allowing for custom coupons, effective dates and maturity dates to be specified, giving firms the ability to tailor the contracts precisely to their needs. In addition to being an effective vehicle for corporations to hedge their business risks, a number of strategies based on Eris futures can be executed using TTâs suite of server-side execution tools, such as the AutospreaderÂ® Strategy Engine (Autospreader SE) or the new ADLâ¢ visual programming platform with Algo Strategy Engine (Algo SE). These include: Invoice spreads between the cheapest-to-deliver Chicago Board of Trade (CBOT) or NYSE Liffe U.S. treasury future and an Eris contract with a similar maturity Swap spreads between an Eris future and a similar-maturity BrokerTec treasury Eurodollar basis trades between Eris futures and CME or NYSE Liffe U.S. Eurodollars Swap curve strategies between different Eris maturities, between Eris futures and BrokerTec cash treasuries or between Eris futures and CBOT or NYSE Liffe U.S. interest rate futures We plan to roll out our support for Eris in two phases. The first phase, due out later this year, will add support for Erisâ IMM dated forward starting swaps, including Erisâ invoice spread leg contract. In phase two, we will add support for the rest of the Eris product suite, including spot starting swap futures. Learn More For more information, visit the Eris Exchange page on our website and read the recent news release announcing our plans to connect to Eris. Click to view more posts on Trade Talk.