Morgan Stanley, the sixth-largest U.S. bank by assets, plans to purchase a stake in Eris Exchange LLC and become a liquidity provider for the interest-rate swaps futures market.
Morgan Stanley will participate in electronic and block trading on Eris early next year, the New York-based company said today in a statement. The bank will also join the board of directors of Chicago-based Eris as part of the deal, the terms of which weren’t disclosed.
New rules are pushing more derivatives onto exchanges as regulators seek to reduce the risk resulting from a trading firm defaulting on its obligation in a transaction. Unlike over-the- counter products, those traded on exchanges are usually standardized and cleared by an organization that guarantees the contract will settle.
“As the traditional OTC rates-swap market undergoes significant structural, economic and regulatory changes, Morgan Stanley believes that Eris Exchange and its futurized swaps are ideally suited to provide our clients with flexible alternatives,” Patrick Haskell, Morgan Stanley’s U.S. head of liquid flow rates, said in the statement.
Standard interest-rate swap futures contracts traded on the exchange carry margins that are 40 percent to 80 percent less than over-the-counter agreements, according to the statement.
Morgan Stanley increased its interest-rates trading headcount by more than 20 percent in 2010 and hired Goldman Sachs Group Inc. trader Glenn Hadden last year in an effort to turn around the business. Rates and currency trading contributed more than half the firm’s fixed-income revenue in the 18 months ended in June, from less than half in 2009, an increase driven “primarily by rates,” Chief Financial Officer Ruth Porat said in September.