Tax & Finance

Cboe Exchange Proposes Rule Change for VIX Future-Option Orders

🇺🇸United States··Notice·Medium Impact·View source ↗

AI-generated summary for informational purposes only. Not legal advice. See the original source for the authoritative text.

🇬🇧 English

The proposed rule change by the Cboe Exchange aims to simplify the process for executing orders that include both VIX options and VIX futures. Currently, investors face risks when executing these transactions separately due to possible non-execution or market changes. The new mechanism allows these orders to be combined into a single transaction, reducing those risks. It requires certain members to engage with a futures commission merchant if they are not CFE members themselves. This change could impact traders involved in hedging and investment strategies using these financial instruments.

AI-generated summary. May contain errors. Refer to official sources for legal decisions.

Key Changes

  • Introduction of VIX future-option orders combining VIX options and futures
  • Reduction of execution and market risks for investors
  • Requirement for specific communication with futures commission merchants

Obligations

What this law requires

high

Non-CFE member Users must designate a specific futures commission merchant (FCM) or introducing broker (IB) with which they have entered into an agreement pursuant to proposed Exchange Rule 5.33, Interpretation and Policy .05, that has electronic connectivity to communicate the VX futures component of orders to CFE.

Cboe Exchange members who are not CFE members and wish to submit VIX future-option orders
operational
high

The Cboe Exchange System must execute the option component(s) of a VIX future-option order without immediately sending a trade execution report to the User, and must automatically communicate the VX future component(s) to CFE or the designated FCM/IB for execution on CFE.

Cboe Exchange
operational
high

If the Cboe Exchange System receives a report that the VX future component(s) cannot execute, the Exchange must nullify the VIX option component(s) trade and notify the User of the reason for nullification.

Cboe Exchange
operational
high

The Cboe Exchange must send the User a complete trade execution report for the VIX future-option order, including execution information for both VX future and VIX option components, only upon receiving an execution report for the VX future component(s) from CFE or the designated FCM/IB.

Cboe Exchange
reporting
high

The Cboe Regulatory Division must incorporate information received from CFE into its surveillance procedures to monitor trading of VIX future-option orders, including to detect manipulative trading activity.

Cboe Exchange Regulatory Division
operational

Affected Parties

Traders using VIX options and futuresCboe and CFE members

Tags

financial regulation,trading,derivatives