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Newedge Executes and Clears $2 billion in IRS via Eris Exchange

Contends private initiatives such as Eris Exchange can create a safer environment for OTC interest-rate swaps transactions and clearing.

Newedge USA, LLC, said it has successfully executed and cleared over $2 billion in client interest rate swaps on the Eris Exchange platform, a new entity which has been launched by five Chicago-based high frequency trading firms.

Eris Exchange, first announced in late July, is an exempt board of trade under Commodity Futures Trading Commission (CFTC) regulation with clearing services provided by CME Clearing, according to today’s release.

Newedge’s activity since connecting to Eris Exchange in August 2010 demonstrates the effectiveness of central counterparty clearing of OTC interest rate derivatives and the constructive role that a clearing broker can play in the process, according to the firm’s release.

Newedge, which is currently one of the largest US Futures Commission Merchants (based on customer segregated funds) according to CFTC rankings, has connected to Eris Exchange for the purpose of broking between exchange members to execute client interest rate swaps. Counterparties executing OTC interest rate swap transactions can reduce their risk by trading on Eris Exchange with Newedge as their executing and clearing firm.

The Eris Exchange interest rate wwap futures product is designed to model a standard fixed vs. floating USD denominated interest rate swap on the 3-month LIBOR index, except accruals are included in the price. Customer positions will clear through CME Clearing as segregated (30.7) secured accounts. Newedge is eligible to clear these contracts in its capacity as a CME Class A clearing member.

Five local trading firms have launched Eris Exchange: DRW Holdings LLC, Getco LLC, Infinium Capital Management LLC, Chicago Trading Co. and Nico Holdings LLC, which have all invested in the entity. The new entity was announced in late July. The founding firms will be committed market makers, according to published reports.

In a statement, Nicolas Breteau, Newedge CEO, commented: “Private initiatives such as Eris Exchange can help create a safer environment for OTC interest rates swaps transactions and clearing. Newedge’s Eris initiative shows our commitment to deliver solutions for the IRS asset class, the largest of the OTC derivative markets. The fact that we are involved in both the transaction and the clearing was an important factor in our decision to connect to the Eris Exchange platform. We are fervent supporters of both pricing and post-trade transparency, and view this as the best way to create value for our buy-side clients”.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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