Edward Provost
CBOE President and COO
CBOE Risk Management Conference Welcome Remarks
Thursday, March 5, 2015
8:30 – 9:00 a.m.
Thank you, Paul. And thanks to all of you for joining us for CBOE’s 31 st Annual
U.S. Risk Management Conference.
We are delighted to be here in Carlsbad
with you.
Paul and his team have created an agenda for this year’s program that we think
will deliver content that is of interest and of use to you in today’s markets. Our
trademark sessions are conducted by and for market participants, and we limit
the number of speakers per session so that topics are covered in depth.
Your
participation is what makes RMC truly unique, and I want to thank you for that.
Before introducing our keynote speaker, I will share a few product updates that I
hope will be of interest.
Let me begin with extended trading hours….. Last June, we implemented near
24-hour trading in VIX futures. As a result, more than 9 percent of all VIX futures
trading now takes place outside of regular U.S. trading hours. On days where
there is breaking market news outside of U.S. trading hours, we've seen that
figure rise to as high as 20 percent.
This past Monday, we extended trading hours in VIX options with an additional
session that runs from 2 a.m. to 8:15 a.m. Chicago time. SPX options will also
be available for trading in this same overnight session, beginning next Monday,
March 9th.
Naturally, the new session provides more convenient access to our overseas
customers, but we hope our stateside VIX and SPX customers will value the
ability to get in and out of positions and directly manage their exposure outside of
regular U.S. trading hours.
We were pleased in December to enter into a licensing agreement with MSCI,
enabling CBOE to be the only U.S. exchange to list options on several MSCI global
indexes. The new MSCI products bring an interesting global dimension to our index
option franchise, which as you know, includes options on the major U.S. indexes,
including the S&P 500, Russell 2000, Dow Jones, and Nasdaq-100.
We now are very focused on the April 21st launch of options on the MSCI EFA
and MSCI Emerging Markets Indexes. Last year, nearly 100 million options
traded industrywide on the popular EFA and EEM ETFs.
Our ability to offer cash-settled, European-style options on these indexes, in
addition to the ETF options, is very similar to our SPX and SPY offering. And like
SPX, our cash-settled EAFE and Emerging Markets products will especially
appeal to institutional customers. The settlement times for the options will match
the futures on these products, which trade at ICE. We are confident that our
MSCI options will provide plenty of trading opportunities, and I look forward to
hearing your take on this new product line.
And, of course, we were thrilled last week to enter into another exclusive
licensing agreement, this one with the London Stock Exchange Group, making
CBOE the exclusive provider for cash-settled options on more than two dozen
FTSE and Russell Indexes.
The Indexes represent a diverse group of domestic and global equities. The
Russell Indexes include widely followed benchmarks of U.S.-based stocks, while
the FTSE Indexes focus primarily on European and Asian international equities.
The deal includes the two flagship indexes, the Russell 2000 and the FTSE 100
Index.
In all, these license agreements enable us to significantly expand CBOE’s
product line across new asset classes and markets and create new trading
opportunities for our customers.
They will also lay the foundation for us to
develop new products, including volatility indexes. Importantly, they also provide
for collaborative partnerships that leverage the complementary strengths of
CBOE and the LSE Group to expand the index derivatives space.
Let’s turn now to a quick update on our flagship SPX product, where trading
increased by 8 percent last year, led by a 38 percent increase in SPX Weeklys
volume. We continue to focus our educational efforts to drive greater
understanding of SPX on the buy side, where we felt the product was
underutilized, given its leveraging and hedging efficiencies.
We recently commissioned a white paper on fund use of options, which found
that options-based funds have higher risk-adjusted returns and lower volatility.
We have received great feedback on the study from buy-side customers in need
of data-driven validation to increase their ability to use equity derivatives to
manage funds. Copies of the new white paper are available at the CBOE booth
outside.
While dramatic growth in SPX Weeklys trading continues to drive increased SPX
trading, we think XSP, our mini-SPX option, is worth a mention. At 1/10th the size
of SPX, mini-SPX options are similar in size to SPY options, but are cash-settled
and, in many instances, allow for a more favorable tax treatment. While we’ve
seen a modest uptick in XSP trading, we think this product remains underutilized,
perhaps because customers are not fully aware of the tax differential.
If you
would like to learn more, don’t hesitate to ask -- we’d be happy to walk you
through the tax treatment.
We continue to diversify our VIX product line across asset classes. On January
13th, we began calculating and disseminating values for three new volatility
indexes based on the prices of the most liquid FX options traded at CME: the
Dollar/Euro, Dollar/British Pound and Dollar/Japanese Yen futures contracts. The
new indexes offer the first-ever measures of pure FX volatility, and we look
forward to developing tradable products based on them going forward.
We also are committed to developing markets in Short-term VIX (VXST) futures
and options and Interest Rate VIX futures based on the CBOE/CBOT 10-Year
U.S. Treasury Note VIX Volatility Index (VXTYN).
We introduced VXST futures and options last year into what then became
sustained headwinds of historically low volatility.
Customer feedback confirms
an appetite for short-term volatility trading and fuels our belief in the product’s
potential. We are working closely with customers on this one, and will continue
to evaluate and adjust our approach as necessary.
We view the November launch of VXTYN futures as just the beginning of an
opportunity to grow VIX trading. Interest rates represent a very compelling area
of volatility trading, but I’ll leave that discussion to this afternoon’s VXTYN
session.
Lastly, a couple of RMC updates.
We announced CBOE’s partnership with
Tradelegs, the options strategy optimization company, at last year’s conference
in Florida. I’m happy to say Tradelegs has joined us here in Carlsbad to share
some new developments, including a new feature, called “Beat My Trade,” which
enables users to enter potential trades they are considering to see if Tradelegs
can find a better strategy. You can find Tradelegs at the CBOE booth, and I
encourage you to drop by for a demo.
I am also pleased to note that this year we are expanding RMC beyond the U.S.
and Europe, with the first RMC in Asia. Our ability to take RMC on the road was
made possible by the success of our U.S. conference, and I thank you again for
your participation.
Working closely with customers like you, in forums like this
one, helps us create products and services that add value to your trading
experience and expertise.
I encourage you to share your thoughts and questions with me or anyone from
the CBOE team. We look forward to getting to know you better in this wonderful
setting. The ability to connect with you one-on-one, formally or informally, is one
of the benefits of this conference. Thank you again for joining us.