Chicago Board Options Exchange (CBOE) has announced it will
launch its CBOE Futures Exchange (CFE) on 26 March, pending
regulatory approval. It also announced a number of initiatives
to compete in the war among options markets.
CFE plans to debut with just one contract, CBOE Volatility
Index (VIX) futures, which it unveiled last September.
However, CBOE chairman and ceo, Bill Brodsky, said it plans to
offer more volatility contracts, including perhaps a futures
contract based on the Nasdaq index. Most of CFE's products will
be tied in some way to existing contracts or products used at
CBOE. "This gives us an opportunity to diversify our product
line," Brodsky said.
Brodsky added that the futures exchange is a relatively cost
free venture for CBOE. It will run the exchange on its
CBOEdirect trading platform, which runs its electronic options
system and serves OneChicago. And it will clear trades through
its current clearing house, Options Clearing Corporation.
Brodsky said CBOE embarked on the path because it was much
easier to do from a regulatory standpoint than in years
"We're tying in a product that we're not paying anyone a
license for [in the VIX]. This is something complimentary to
everything we do," Brodsky said. "This gives us flexibility
with a very low entry fee."
Brodsky added that the target for the exchange is current CBOE
users who may want to trade matching futures and options
products. But it does not have plans to jump into battles for
interest rate futures futures market share, he said.
New member classes
Meanwhile, CBOE executives said they are set to roll
out two new classes of memberships to expand the number of
market makers on its hybrid trading system. Pending regulatory
approval, CBOE will introduce electronic designated primary
market makers (e-DPMs) and remote market makers (RMMs).
Approval is expected in the next week or two. The two market
maker groups will allow for market making on the hybrid system
from virtually anywhere. While remote market making is not new
to the options industry, CBOE officials claim the system is
more configurable to the needs to market makers than other
exchanges. The hybrid system, rolled out last June, will push
the number of listings to 500 of the top options contracts on
it by the end of the month. Its liquid index options contracts
have not yet been added to the hybrid platform.
Exchange executives said that, with improvements on
its electronic system and the recently-announced fee cap due
for implementation on 1 February (see FO Week Vol 9 No
3), CBOE has stemmed the loss of market share to rivals such as
International Securities Exchange.
"Our market share has remained relatively steady since the
onset of hybrid," said Ed Tilly, CBOE vice chairman. "We were
in a spiral before and stopping a spiral is a huge
accomplishment. And now we're starting to take the offense
which we haven't done for some time."
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