The JSE is proud to bring the first South African Interest Rate Swap Future to the market. This has been a long consultative journey and ultimately the JSE is delivering the markets' product of choice.
G20, Basel III and OTC market regulation have not only increased the need for clearing of standardised OTC instruments but have increased the need for complementary on-exchange instruments. Client demand for a swap-style product offering on exchange drove the JSE to begin product development late 2013.
The JSE will launch this product on Monday, 31 August 2015. The product will be available for trading on the JSE on the Interest Rate and Currency trading platform. Participants will need to trade through an authorised Interest Rate Derivatives member of the JSE and the product will be cleared through JSE Clear. Participants will only require standard futures documentation. The advantage of this is that market participants can operate within familiar ecosystem and infrastructure. The JSE will list four tenors on launch, namely the 1, 2, 5 and 10 year tenors and hope to expand this list over time.
The standard interest rate swap future that is being launched is based on the Eris Methodology™ and has been licensed from Eris Exchange, a U.S.-based futures exchange group. The JSE and Eris Exchange announced a Swap Futures partnership on 15 April 2015. The standard IRS Future product will be based on the Johannesburg Interbank Agreed Rate (JIBAR) and denominated in South African Rand (ZAR). The product will follow the standard South African swap market conventions while using the Eris Methodology™, allowing the contracts to replicate the cash flows of OTC swaps.
The JSE will use a portfolio VaR framework to determine the amount of initial margin participants should post for position in the swap futures product suite, instead of the J-SPAN framework that is used for all other futures. Portfolio level initial margin will thus recognize the offsets associated with trading long and short positon across the curve
Eris products listed on JSE are based on the Eris Methodology™, Eris’ product design for constructing capital-efficient futures that incorporates intellectual property, expertise and patent-pending innovations.