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Copyright ©2011 Eris Exchange, LLC. All Rights Reserved. Eris Exchange Offering Overview Transparency | Anonymity | Capital Efficiency

Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

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Page 1: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright ©2011 Eris Exchange, LLC. All Rights Reserved.

Eris Exchange Offering Overview Transparency | Anonymity | Capital Efficiency

Page 2: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 2

What is Eris Exchange?

Futures Exchange – USD Interest Rate Swap Futures • A known regulatory and operational framework

• Designated Contract Market (DCM) • Processed and margined as a futures contract

• Anonymous trades cleared through CME Clearing

• Futures contract replicates the cash flows associated with OTC interest rate swaps

• Highly capital efficient – up to 95% margin off-sets (offered in 2012)

• Distribution via 60+ CME Clearing Firms allows access to new swaps liquidity

The Product Offering (Patent Pending)

• Flexibility of equivalent plain vanilla OTC swaps

• Spot starting contracts remain outstanding until maturity

• Forward starting contracts with fixed coupons and IMM dates concentrate liquidity • IMM dated contracts eliminate the need for post-trade compression

Page 3: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 3

• Traditional futures markets open to thousands of participants • No ISDA Agreements required; standard futures documentation Open Access

• Margin offsets with listed futures at CME Clearing • Will offer up to 95% savings on margin collateral Capital Efficiency

• Order book with streaming quotes for benchmark contracts • Liquidity providers with quoting requirements • Trade and unwind with any counterparty, 2-sided quotes

Liquidity & Anonymity

• Mirrors risk profile and cash flows associated with OTC swaps • Flexible contracts: any rate, any date OTC Swap Economics

• Easy to get started: trading screen provided by Eris Exchange • Open APIs, with leading ISVs integrating into Eris SwapBook • Utilizes existing clearing processes for post-trade allocations

Simple Integration

• Fixed coupon contracts eliminate the need for post-trade compression • No line-item proliferation with forward staring offering Compression

Value Proposition

Page 4: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 4

Variation Margin

Up-front and Termination Payments

Interest Paid on

Collateral

Fixed and Floating

Payments

Futurizing Interest Rate Swaps Eris  Exchange  has  “futurized”  OTC  interest  rate  swap  exposure  by  consolidating  multiple  cash flow streams into a single daily cash flow in the form of margin payments and receipts

OTC IRS

Eris Interest Rate Swap Futures

Collateral Posted

Page 5: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 5

Economics of Eris Futures Contracts

Index Price Swap NPV Accumulated Swap Payments Eris PAITM Settlement

Value Constant value which matches 100 price basis

Equivalent to NPV of an analogous OTC swap

Past fixed and floating swap payments; Calculated once daily

Accumulated interest paid on variation margin Accrues at Fed Funds Rate on NPV; Calculated once daily

Value used to facilitate bookkeeping through existing futures systems

100 + A + B - C = Eris Futures Price

100 + 1.25 + 0.12 - 0.001 = 101.369

$1,250,000 $120,000 $1,000

Example: 10-year $100mm Eris contract initiated 4 months ago (i.e., 100 contracts)

+ + - =

Page 6: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Integrated World-Class Platforms

6

Clearing, Margins &

Back-Office

Pricing Engine &

Post-Trade

Regulatory Surveillance

Services

Electronic Trade

Matching

Page 7: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Trade Execution Alternatives

7

Voice

Off the Run

Benchmark • All-to-All markets • Firm and live streaming quotes • Pre-trade credit checks • Anonymous trading • Click-and-done trade certainty • APIs and 3rd party front-ends • RFQs spawn spontaneous order

books • Any trader can respond to RFQs • Dedicated liquidity providers

Electronic

• Voice-brokered block trades • Trade into and out of

positions • Pre-clearing credit checks • Separate entry facility from

Eris SwapBook • Clearing firm access to risk

profile and controls • Facilitate spread trading

and unwinds

Exchange for Physical

Block Trades

Standard Fixed Rate

Exchange for Risk

Page 8: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 8

Continuously Quoted Benchmark Contracts

Benefits: • Avoids contract proliferation and eliminates need

for post trade compression • Trades quoted in NPV terms • Several forward starting contracts with dedicated

market makers: streaming, executable, 2-way markets

• No upfront payments for off-market trades

Sample Featured Contract: • Effective Date: 12/21/2011 (December IMM Date) • Tenor: 10 years • Fixed Rate: 2.25%

Page 9: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 9

• Voice executed trades are supported above the block level • Immediate credit check for all off exchange and brokered trades • Web interface to report Eris Exchange futures blocks, EFPs and EFRs • Block trading is allowed in Interest Rate Swap Futures and subject to

Eris Exchange minimum block size rules

Off-Exchange Execution

Initial Maturity

Minimum Block Size

Less than 5 Years $50M and above

5 Years or More $25M and above

Page 10: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Significant Capital Efficiencies

10

Capital Efficiency for Trading Firms • Upon DCM status, positions held in customer

segregated 4d accounts • Margin is calculated by CME using 5-day HVaR • Highly capital efficient; 85% to 95% margin off-sets

• U.S. Treasury futures and Eurodollar futures in 2012 • Settles to the CME Clearing Swap Curve

• Independent and neutral curve creation Capital Efficiency for FCMs • Trades are backed by flagship CME guarantee fund

• No additional guarantee fund contributions • No  “LSOC”  segregation  requirements

Maturity Pay Fixed Margin

Received Fixed

Margin

2yr 0.4% 0.6% 5yr 1.6% 2.6%

10yr 4.5% 6.8%

Margin levels shown as a % of notional as of October 26, 2011

Page 11: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Leverages  CME  Clearing’s  Post-Trade Tools Pre-Trade, Post-Trade and Allocations • Participants can utilize existing futures give-up framework and

agreements used for more than 20% of US futures volume • Allocate trades using CME Give Up System • Manage agreements with the FIA Electronic Give-Up System

(EGUS) Average Pricing • Clearing firms, brokers and asset managers can take multiple

fills across different prices and re-price them to a single level • CME Average Pricing System (APS)

CME Clearing Margin Tools • Clearing firms and customers can independently verify initial

margin amounts on actual and simulated portfolios • CME CORE and CME PC RATES applications

11

Pre-Trade

Post-Trade

Allocations

Average Pricing

Trade 1

Trade 2

Trade 3

Trade 4

MARGIN TOOLS

• CME CORE • CME PC RATES

Page 12: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Access Provided by CME Clearing Firms • Over 60 CME Clearing members are eligible to support participants • FCMs must maintain minimum capital of $50 million in order to clear • FCMs use the same HVaR margin methodology and curve for CME IRS • FCMs in bold registered to clear and have certified or are in the process of certifying

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ABN AMRO CLEARING CHICAGO LLC FCSTONE LLC MF GLOBAL INC RBC CAPITAL MARKETS LLC

ADM INVESTOR SERVICES INC FOREX CAPITAL MARKETS LLC MITSUBISHI UFJ SECURITIES USA INC RBS SECURITIES INC

ALLIANZ GLOBAL INVESTORS DIST. LLC GAIN CAPITAL GROUP LLC MIZUHO SECURITIES USA INC RJ OBRIEN ASSOCIATES LLC

AMERIPRISE FINANCIAL SERVICES INC GLOBAL FUTURES & FOREX LTD MORGAN KEEGAN & COMPANY INC ROSENTHAL COLLINS GROUP LLC

BARCLAYS CAPITAL INC GOLDMAN SACHS & CO MORGAN STANLEY & CO INCORPORATED SANFORD C BERNSTEIN & CO LLC

BGC FINANCIAL LP GOLDMAN SACHS EXEC. & CLEARING LP MORGAN STANLEY SMITH BARNEY LLC SANTANDER INVESTMENT SEC. INC

BNP PARIBAS COMMODITY FUTURES INC HSBC SECURITIES USA INC NATIXIS SECURITIES NORTH AMERICA INC STATE STREET GLOBAL MARKETS

BNP PARIBAS SECURITIES CORP INSTINET LLC NEUBERGER BERMAN LLC STEPHENS

BNY MELLON CLEARING LLC INTERACTIVE BROKERS LLC NEWEDGE USA LLC TD AMERITRADE INC

CANTOR FITZGERALD & CO JP MORGAN CLEARING CORP NOMURA SECURITIES INTERNATIONAL INC TENCO INC

CIBC WORLD MARKETS CORP JP MORGAN FUTURES INC OANDA CORPORATION TIMBER HILL LLC

CITADEL SECURITIES LLC JP MORGAN SECURITIES LLC OPPENHEIMER & CO INC TRADESTATION SECURITIES INC

CITIGROUP GLOBAL MARKETS INC LPL FINANCIAL CORPORATION OPTIONSXPRESS INC UBS FINANCIAL SERVICES INC

CREDIT SUISSE SECURITIES (USA) LLC MACQUARIE FUTURES USA INC PRUDENTIAL BACHE COMMODITIES LLC UBS SECURITIES LLC

DAIWA CAPITAL MARKETS AMERICA INC MERRILL LYNCH PIERCE FENNER & SMITH RAND FINANCIAL SERVICES INC WELLS FARGO ADVISORS LLC

DEUTSCHE BANK SECURITIES INC MERRILL LYNCH PRO. CLEARING CORP RAYMOND JAMES & ASSOCIATES INC WELLS FARGO SECURITIES LLC

Page 13: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Eris Exchange fees are tiered; each futures contract is $1M face Eris Exchange fees are charged per side (both the buyer and the seller) per contract and include clearing services fees provided by CME Clearing CME Eurodollar futures fee equivalent comparison CME Globex + clearing customer fees are $1.22 / contract

Eris Exchange Fees

13

Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Eris Exchange fees are comparable to benchmark futures

Fees Per Side Tenor Fee ($) Fees (implied per annum bps) 2 Year $10 0.06 3 Year $18 0.06 5 Year $18 0.04 7 Year $24 0.04 10 Year $24 0.03 30 Year $48 0.02

Page 14: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 14

Eris Exchange Contacts

Neal Brady Chief Executive Officer [email protected] (312) 253-9056 Christopher Rodriguez Chief Sales and Corp. Dev. Officer [email protected] (212) 561-5472

Michael Riddle Chief Operating Officer [email protected] (312) 626-2699

Kevin Wolf MD and Head of Product Development [email protected] (212) 231-7859

Eris Exchange Offices Chicago Office 311 South Wacker, Suite 950 Chicago, IL 60606 (888) 587-2699

New York Office 111 Broadway, Suite 805 New York, NY 10006 (212) 561-5472

Page 15: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Appendix

• Eris Exchange Product Details • Trades Like a Swap • Clears as a Future

• Initial Margin Level Details – Curve Trades • Unique Product Features

15

Page 16: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 16

Trades  Like  a  Swap… Swap

Quoting Conventions • Par trades: Rate • Unwinds and Contracts with Pre-defined Fixed Rates: NPV • Pay fixed: Bid / Buy • Receive fixed: Offer / Sell

Trade Terms

• Effective Date: Any good business day out to 10 years • Termination Date: Up to 30 years following the Effective Date • Fixed Payments: Semi-annual, 30/360 • Floating Payments: Quarterly, Actual/360 • Adjustment to Period End Dates • Contract stays open until maturity • New York and London Calendars; London only for LIBOR fixing

Index • 3 Month LIBOR

Market Sensitivity • Same DV01 as an OTC swap

Return on Posted Margin • Overnight Fed Funds; analogous to interest earned on collateral posted under a Credit Support Annex (CSA)

Page 17: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Booking Value for Par Swap • NPV 0 = 100 • Futures price captures all contract cash flows

Cash Flows Prior to Termination Date

• Initial margin based on SPAN; moving to HVAR • Variation margin transfer; Daily settlement by CME Clearing

Terminal Value • Accumulated fixed and floating payments • Price Alignment Interest over life of the swap (Eris PAITM)

Documentation • Simple one-time account set-up documentation; No ISDAs

Unwind Counterparty • All market participants

Counterparty Credit Risk • CME Clearing acts as counterparty on all trades

Market Access • Any market participant through 60+ active FCMs at CME

Capital Efficiency • Upon receiving DCM approval: Margin offsets with other CME futures reducing initial margin and variation margin

Credit Checks • Real-time credit checks; No Fails

Lot Size • 1 contract represents $1,000,000 notional

17

…Clears  as  a  Future Future

Page 18: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Initial Margin Level Details – Curve Trades

18

Tenor Effective Mark-to-market / Portfolio Description Steepener Flattener

2's - 5's Spot Curve Trade $1,170,887 $1,654,359

2's - 10's Spot Curve Trade $4,116,427 $5,210,587

2's - 30's Spot Curve Trade $13,578,313 $10,481,951

5's - 10's Spot Curve Trade $2,564,398 $2,251,626

5's - 30's Spot Curve Trade $10,107,261 $7,842,135

10's - 30's Spot Curve Trade $6,629,243 $4,608,011

Tenor Effective Mark-to-market / Portfolio Description Pay Receive 2 Spot Par $402,120 $596,600

5 Spot Par $1,597,710 $ 2,567,390

10 Spot Par $4,505,690 $6,790,560

30 Spot Par $14,809,110 $15,078,140

Margin levels as of October 26, 2011

Page 19: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved.

Unique Product Features

• Futures contracts from inception to maturity; contracts are never considered an OTC swap

• Contracts remain open until maturity; no quarterly rolls

• Contracts are created dynamically upon execution of a new trade

• Z codes are unique identifiers created for each trade

• Credit controls occur pre-trade and there are no fails in the order book and/or RFQ functions

• “Click-and-Done”  means  that  trades  are  cleared concurrently with execution

19

Page 20: Eris Exchange Overview - The OTC Space · CME Globex + clearing customer fees are $1.22 / contract Eris Exchange Fees 13 Tenor CME Fees 2- year $9.76 5-year $21.96 10-year $41.48

Copyright © 2011 Eris Exchange, LLC. All Rights Reserved. 20

Eris Exchange Legal Notices

Version Created 2011-10-30

Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a  percentage  of  a  contract’s  value  is  required  to  trade,  it  is  possible  to  lose  more  than  the  amount  of  money  deposited  for  a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures. Eris Exchange and the Eris Logo are registered trademarks of Eris Exchange, LLC. Eris SwapBook, Eris BlockBox, and Eris PAI are trademarks of Eris Exchange, LLC. The information within this document has been compiled by Eris Exchange for general purposes only. Eris Exchange assumes no responsibility for any errors or omissions. Additionally, all examples in this document are hypothetical situations, used for explanation purposes only, and should not be considered investment advice, legal advice, or the results of actual market experience. The information contained within this document does not constitute legal or investment advice. All matters pertaining to rules and specifications herein are made subject to and are superseded by official Eris Exchange rules. Current rules should be consulted in all cases concerning contract specifications. Copyright © 2011 Eris Exchange LLC. All rights reserved.