- New CFTC-regulated options on futures will physically settle into front-month Cboe Volatility Index (VIX) Futures
- Designed to offer market participants the ability to more granularly manage volatility
- Further expansion of Cboe’s volatility complex following launch of Cboe S&P 500 Variance (VA) futures
Chicago – October 9, 2024 – Cboe Global Markets, Inc. (Cboe: CBOE), the world’s leading derivatives and securities exchange network, today announced its new Options on Cboe Volatility Index (VIX) Futures (Ticker: UX) are planned to begin trading on Cboe Futures Exchange, LLC (CFE) on Monday, October 14.
The new Options on VIX Futures will provide investors an additional tool to help manage U.S. equity market volatility, complementing Cboe’s existing securities-based VIX Index options, which are designed to provide similar risk management and yield enhancement capabilities. Utilizing an option-on-future structure, the new product may allow more market participants, including those restricted from accessing securities-based options, to trade a VIX options product.
Cboe’s VIX Index options have seen record trading volumes during the last two years, with average daily volumes reaching over 851,000 contracts in 2024, up approximately 60% from 2022, as more investors have sought utility the options offer.
“Investors have long utilized VIX options and VIX futures to help hedge and manage volatility exposure, and Cboe is proud to expand our volatility product suite at such a critical time,” said Catherine Clay, Global Head of Derivatives at Cboe. “With its options-on-futures structure, the new Options on VIX Futures will look to meet growing customer demand as Cboe works to provide an efficient and seamless experience to both existing and new CFE market participants. The launch will complement our existing volatility offerings, including the recently launched Cboe S&P 500 Variance futures, and enable more investors with the ability to help manage volatility and risk through the election season and beyond.”
“20 years after Cboe launched VIX futures, followed by VIX options, and helped establish volatility as an asset class, we continue to prioritize product innovation, engage with our customers and bring new exchange-traded volatility derivatives to market,” said Rob Hocking, Head of Product Innovation at Cboe. “We believe there is a strong demand for risk management tools, especially as investors prepare for the upcoming election and the recent change in the Fed’s monetary policy. We’ve seen a shift in how investors are using options on a day-to-day basis, and with Options on VIX Futures having a mid-curve structure and the ability to offer short-term exposure, investors are expected to be able to manage short-term volatility with greater precision.”
Christine Hansen, CEO at IMC US, said: “We are proud to support the expansion of listed volatility offerings from Cboe to meet the varying needs of investors”
Tom Chlada, Chief Operating Officer at Prime Trading, said: “Prime’s investment philosophy is to protect and grow capital, and Cboe’s new Options on VIX Futures will be a very welcomed addition to our toolkit, enabling us to better express views on volatility and fine-tune our risk management approach. We believe the new options will help boost participation and trading opportunities in the volatility space, and we look forward to incorporating this tool in our portfolios.”
Keith DeCarlucci, Chief Investment Officer at Melqart KEAL Macro Fund, said: “VIX futures and options play an important role when managing portfolios, and we welcome Cboe’s further expansion of its exchange-traded volatility tools with Options on VIX Futures. Combined with the recent variance futures launch, we have two new products to leverage.”
Options on VIX futures will have European-style exercise, P.M. settlement and physically settle into front-month VIX future. At launch, CFE will list contract expirations for every day the week of October 21 with two additional Friday expirations. Each weekday beginning October 21, CFE plans to list a new contract for trading expiring on the same weekday in the week or weeks following.
The contracts will be regulated by the Commodity Futures Trading Commission (CFTC) and cleared by The Options Clearing Corporation (OCC).
The upcoming launch of Options on VIX Futures follows the recent launch of Cboe S&P 500 Variance (VA) futures, which are designed to offer a streamlined approach to trading the spread between implied and realized volatility. Both products add to Cboe’s existing volatility suite and provide investors with exchange-traded solutions to manage market volatility ahead of and following the U.S. election.
Source: Cboe Global Markets
The Hidden Challenges with Secondaries Market Growth
Michael Aldridge, President of Accelex, looks at the exponential growth of private market secondaries and the role technology can play to enhance data quality and support investment decisions.
Private secondaries are growing at pace as investors look for liquidity solutions in an increasingly volatile market.
In the first half of 2024 market value reached USD 68 billion, reflecting a significant shift in investor strategy towards more flexible, liquid options in private markets.
The sector is looking at a potentially record-breaking finish to 2024, according to mid-year advisory reports from Campbell Lutyens, Jefferies, Evercore and PJT Partners.
Despite this growth, the sheer volume and complexity of unstructured data, often trapped within PDFs and other document formats, poses a significant challenge for secondary market investors.
What’s behind the growth?
Over the past couple of years, public markets have been underperforming and IPO activity has been volatile. This has put pressure on investors as they look to other avenues for liquidity, and to rebalance their portfolios.
The availability of better data and transparency in private markets have made secondary investments more attractive and accessible. They also offer tailored and flexible solutions for GPs and LPs such as structured liquidity and continuation funds.
Secondaries provide investors with a place to buy assets years into their performance cycle, usually at a discount, which means the average holding time of the fund’s underlying assets will typically be shorter.
Compared with traditional private investments executed at fund inception, buyers have significantly more asset-level information available to them for the basis of their decisions.
However, carrying out independent valuation of all assets quickly and efficiently is key to capitalising on this data-rich deal environment.
Data is the lifeblood of decision-making
In secondaries, data is the lifeblood of informed decision-making and as more investors enter the space, the sheer volume of data associated with these transactions has skyrocketed.
What buyers are up against is how to access valuable content within a vast amount of unstructured data that is provided by the seller.
The three main challenges facing buyers include:
These challenges are creating a bottleneck in the due diligence process, which is paramount in secondary deals. With the volume of assets being exchanged, investors require deeper insights into risk factors, financial performance and potential future returns – which must be delivered quickly.
These manual processes are slowing them down while being costly, inefficient, time-consuming and often error-prone.
With the secondaries market forecasted to exceed $140 billion by the end of the year, these manual processes are making it seemingly impossible for buyers to strike the right balance between speed, scalability and accuracy without the occasional mis-valuation or missed opportunity.
The role of technology
To get the most out of this fast-moving market, technology must advance at the same rate.
Currently, there is a lack of automation technology in the market which would bolster secondaries buying.
But the appetite is there for a more sophisticated approach to minimise time spent acquiring, condensing and analysing various data points in a dynamic and responsive manner.
Advancements in technology mean that by adopting AI and machine-learning techniques, processes for these can now be automated.
This allows buyersto simplify the demanding workflow of secondaries and deliver tangible rewards including scalability, auditability, time and cost savings.
AI and automation can tackle and automate most pain points in the secondary due diligence process including:
Looking ahead
The huge growth of the private secondaries market has opened a lot of new doors for investors seeking liquidity in an unpredictable market.
However, this growth is also creating headaches for investors, particularly around managing and analysing the vast volumes of unstructured and disparate data.
To navigate this complex environment efficiently, secondary buyers must increasingly turn to technology.
By embracing AI and automation solutions, they can streamline workflows, reduce manual errors, and enhance scalability.
As the market continues to evolve, leveraging these tools will be essential for staying competitive and unlocking the full potential of secondaries.
Those who can harness the power of data and technology in this fast-paced, dynamic market will reap the rewards.