The Johannesburg Stock Exchange (JSE), the continent's largest exchange, has launched JSE Eris Interest Rate Swap (IRS) Futures, based on the Johannesburg Interbank Agreed Rate (JIBAR) and denominated in South African Rand.

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 over the counter (OTC) swaps.

The new product offering will be available for trading by all registered Interest Rate market members and their clients and will be cleared through JSE Clear.

Warren Geers, Head: Interest Rates and Currencies at the JSE, said: “Bringing this product to market has been a collaborative effort between us, our clients and our partnership with Eris. After significant engagement with market participants we took a global product and modified it to make it a truly South African product relevant to the South African market needs.”

The IRS Swap Futures will be competitively priced; clients will be charged R1 per contract (R100 000) for 1 and 2 year tenors and R2 for any tenors greater than 2 years.

The JSE will make appropriate pricing alignment as the product gathers more trading momentum.

The swap futures, which are based on the Eris Methodology, remain futures throughout the full life-cycle of the contract with no risk of physical delivery and can be held to their maturity date.

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 traditional portfolio scanning framework (j-SPAN) that is used for all other futures at the JSE.

Portfolio level initial margin will thus recognize the offsets associated with trading long and short positions across the curve.

“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 exchange traded futures,” said Geers.

The JSE expects trading of the IRS Swap Futures to pick up in the last quarter of 2015 as clients are in the process of ensuring their systems are equipped to start trading those instruments.

Neal Brady, CEO of Eris Exchange, said: “We look forward to growth in JSE Eris Swap Futures similar to what we have seen in the US, where year-to-date volumes are twice that of last year.”