EDS – Trading Strategies

Soon the new EDS (Exchange Defined Strategies) strategies will be available on the PUMA Trading System. Through these new strategies, treasuries, fund managers, non-resident investors, brokerage houses and distributors will gain efficiency in carrying out interest rate and currency curve strategies.

The project includes the launch of FRA (Forward Rate Agreement) and DV01 neutral strategies for the following contracts:

One-Day Interbank Deposit Futures (DI1)
DI x IPCA Spread Futures (DAP)
Forward Rate Agreement on DI x U.S. Dollar Spread (FRC)

See how the strategies work below.

Product Benefits

Execution Risk Elimination

Trading both legs of the strategy in segregated order books no longer needed.

Fee Efficiency

Fees in line with the strategy potential P&L with greater trading incentive compared to trading per legs.

Execution Report

Leg information – price and quantity – will also be published at the time the strategy is traded.

Transparency

The entire market will be able to view exactly how much is being traded in each type of strategy via market data.

Direct and Integrated FRA and Slope Strategy Trade with Fee Incentive

Strategy types

- FRA Neutral or PU (Unit Price): Combines two product maturities with calibrated amounts to neutralize the PU of the transaction. The goal is to trade the FRA rate between both maturities.

- Slope or DV01 Neutral: Combines two maturities, but the amounts are calibrated to neutralize the DV01 in each leg. The goal is to trade the price differential between both maturities.

Fee Structure

The EDS fee structure considers the risk of each strategy. The calculation is given by the difference in risk factors of the trade's legs multiplied by a strategy adjustment factor. A combination of DI FRA F22 and F23, for example, has a different risk than a combination of DI FRA F23 and F27. Therefore, the model will consider this difference to align the cost with the potential P&L.

On the EDS Technical Workshop video you can also better understand how FRC, DAP and DI1 fee structure works.

DI1

The underlying asset of the One-Day Interbank Deposit Futures ID x U.S. Dollar Spread Futures Contract (DI1) is the average daily rate of Interbank Deposits (DI) calculated and disclosed by B3 between the trade date, inclusive, and the maturity date, exclusive, and is used for hedging and managing interest rate risk of ID benchmarked to assets/liabilities.

FRC

The Forward Rate Agreement Structured Transactions (FRC) combine in the same transaction trading of two ID x U.S. Dollar Spread Futures contracts starting on a future date (forward), thus eliminating the risk of executing different order books for each ID x U.S. Dollar Spread Futures contract.

DAP

The IPCA Spread Futures (DAP) contract is a hedging tool against fluctuations in the Brazilian real interest rate. It is calculated by the difference between the average rate of one-day interbank deposits (DI) and the inflation measured by the Extended Consumer Price Index (IPCA).