Advantages

Aditya (2013) advocates that futurization of swap would reduce regulatory

burden as swaps have high cost of registration and a high compliance cost
to end users in the form of higher fees, however use of swap futures
allows market participants to decrease the nominal volume of their swaps,
potentially allowing them to avoid registration as Swap dealers or Major
swap participants with the CFTC. Regulatory arbitrage encourages market
participants to pick more advantageous regulatory schemes for cost
saving, accounting, tax, or other purposes. The comparative clarity of
regulatory schemes now favour futures.

The stringent capital requirements under Basel III have changed the
requirements of capital and associated cost for financial institutions. The
degree of customization offered by the product has direct relationship with
the transaction costs. As the margin accounts of futures require less
collateral, it becomes more attractive for investors as compared to swaps.
The initial and variation margin requirement in futures is less as compared
to swaps i.e. in swap, margin requirement includes a 5-day value at risk
charge (VAR), while in futures margin requirement is 1 day VAR charge.
Highly Customised swaps require additional margin in excess of five-day
VAR subject to CVA Var under Basel III. Thus, the higher margin
requirement of swaps makes the total activity of trading swaps inefficient.

Swaps future require different block trade requirement i.e. a block trade is
a swap of large principal value. Usually these block trade are exempted
from SEF trading requirement, it stated that these transactions can
happen over the phone as they have been traditional. These trades should
be reported, and the clearing mandate will still apply, but reporting of
these will be delayed as there is no requirement of pre-trade price
transparency on the screen. The CFTC proposed by setting relatively high
minimum block requirement for swap trade on a swap execution facility.
On the hand, each DCM set its own minimum requirement for future
contracts, which led to minimum block requirement which are
inconsistent, but they are much smaller in general as compared to the
CFTC required block for swaps.

In the current scenario of derivatives market, swaps futures provide

greater certainty to investors as compared to swaps as futures exchange
are already well established and fully functioning, whereas new rules
governing swaps execution, clearing and reporting post Dodd Frank act
remain unsettled and complicated, resulting in reduced regulatory
uncertainty surrounding the futures, which are cleared and exchange
traded.

As the Dodd-Frank Act makes the use of swaps data repository (SDR)
compulsory for centralised swap data reporting and recordkeeping.
Futures are vertically aligned reporting as compared to the swaps market
which are Horizontal aligned reporting i.e. in swaps they have a SDR
(Swaps Data Repositories) it is that in which the swap data reporting and
recordkeeping is done. All swaps, whether they are cleared or uncleaned
are required to be reported to registered SDRs.

https://www.cmegroup.com/education/files/significant-potential-for-
interest-rate-swap-futures.pdf