The Johannesburg Stock Exchange (JSE), Africa's largest exchange, has signed a multi-year licensing agreement with Eris Exchange, a US-based futures exchange group, to list swap futures on the South African Exchange.

The license agreement enables the JSE to launch multiple swap futures products based on the Eris Methodology, Eris' product design for constructing capital-efficient futures that replicate the economics of OTC swaps, which incorporates intellectual property, expertise and patent-pending innovations.

Warren Geers, Head: Interest Rates and Currencies at the JSE, said: "Signing this license agreement with Eris is an important move for the JSE. We consulted with our market participants to garner their needs and we believe that providing these swap futures products via the JSE will offer our clients the regulatory certainty of futures and allow market participants to operate within the familiar eco-system of futures while broadening their international exposure.”

The initial focus of the agreement will be to list and trade interest rate swap (IRS) futures.

These products will be based on the Johannesburg interbank agreed rate (JIBAR) and denominated in South African rand.

The products 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.

Authorized trading members and their clients will only need standard futures documentation, rather than ISDA Master Agreements that are required to trade bilateral OTC swaps.

The Eris Methodology replicates the economics of OTC swaps in the form of capital-efficient futures products that consolidate the gross cash flows of analogous OTC swaps into a single futures price, resulting in cash flow occurring through variation margin.

Swap futures based on the Eris Methodology remain futures throughout the full lifecycle of the position with no risk of delivery, and can be held to their maturity date.

Neal Brady, CEO of Eris Exchange, said: "As Eris continues to roll out the Eris Methodology for designing cash-settled swap futures to new jurisdictions and asset classes, we are delighted to partner with JSE as the leading exchange in South Africa."

"Having recently set a new monthly volume record of 5,122 contracts per day in March-along with a new open interest record-for our flagship Eris Swap Futures in the U.S. dollar interest rate market, we are eager to see this momentum translate into growth in South African Rand-denominated swap futures," he said.

The agreement also allows the JSE the potential to list cross-currency swap futures, as well as credit default swap futures on South African single names and baskets.