Regulatory Circular RG15-138

Transcription

1 Regulatry Circular RG Date: Octber 2, 2015 T: Trading Permit Hlders and Clearing Trading Permit Hlders Frm: Regulatry Divisin RE: Prduct Descriptin and Margin and Net Capital Requirements - Weekly Optins n the CBOE Vlatility Index KEY POINTS On Thursday, Octber 8, 2015, Chicag Bard Optins Exchange, Incrprated (CBOE r Exchange) plans t list fr trading ptins with weekly expiratins (Weeklys) n the CBOE Vlatility Index (Ticker Symbl: VIX). With the exceptin f mre frequent expiratin dates, VIX Weekly ptins generally have the same cntract specificatins as mnthly expiring cntracts. VIX Weekly ptins are series f the VIX ptin class. The mdified Hybrid Opening System (HOSS) pening prcedures that apply t Hybrid ptin series will be used t calculate the exercise settlement value fr VIX Weekly ptins as described in CBOE Regulatry Circular RG A distinctin frm standard (mnthly) VIX expiratins is that exercise settlement values fr VIX weekly ptins shall be a Special Opening Qutatin (SOQ) f the VIX Index calculated using a sequence f pening prices during regular trading hurs f P.M.-settled SPX End-f-Week (SPXW) ptins (SPX Weeklys) and the time t expiratin will typically be 30 days, plus 390 minutes t reflect the extra time t trade the cnstituent SPXW ptin series until 3:00 p.m. Chicag time (CT) n their expiratin date. If CBOE annunces that it will clse early r that trading in cnstituent ptin series is delayed, the time t expiratin used t calculate the SOQ will be adjusted accrdingly. Example 1: SPX Weeklys will clse at 12:00 p.m. CT n Nvember 27, 2015 in bservance f the Thanksgiving hliday, s the time t expiratin used t calculate the SOQ fr the VIX Weekly ptins that expire n Wednesday, Octber 28, 2015 will be 30 days, 210 minutes. Example 2: If CBOE annunces that the pening f trading in the cnstituent ptin series is delayed, the time t expiratin fr the cnstituent ptin series used t calculate the exercise settlement value fr VIX weekly r VIX standard (mnthly) expiratins (as applicable) wuld be reduced t reflect the actual pening time f the cnstituent ptin series. CBOE hlidays bserved n Wednesdays r Fridays will result in a settlement day change and may result in a change in time t expiratin used t calculate the exercise settlement value fr VIX Weekly ptins. Specifically, if the Friday thirty days fllwing a Wednesday (i.e., thirty days away) is a CBOE hliday r a Wednesday is a CBOE hliday, the settlement day and time t expiratin may be adjusted accrdingly: Example 1: The VIX Weekly ptins that settle during the last week f Nvember 2015 will expire n Tuesday, Nvember 24, 2015 because trading in the SPX Weeklys that will be used t calculate the exercise settlement value fr this VIX Weekly expiratin will be clsed n Friday, December 25, 2015 fr the Christmas hliday. Als, trading in the cnstituent SPX

2 Weeklys will clse early at 12:00 p.m. CT n December 24, 2015 (the day befre Christmas). As a result, the time t expiratin used t calculate the SOQ fr the VIX Weekly ptins that expire n Nvember 24, 2015 will be 30 days, 210 minutes. Similarly, the VIX Weekly ptins that expire during the first week f December 2015 will expire n Tuesday, December 1, 2015, because trading in the SPX Weeklys that will be used t calculate the exercise settlement value fr this VIX Weekly expiratin will be clsed n Friday, January 1, 2016 fr the New Year s Day hliday. As a result, the time t expiratin used t calculate the SOQ fr the Nvember 24, 2015 VIX Weekly ptins will be 30 days, 390 minutes. Example 2: If a Wednesday is a CBOE hliday and the Friday thirty days later is nt a CBOE hliday, the VIX Weekly ptins that expire that week will settle n the preceding Tuesday and the time t expiratin used t calculate the SOQ will be adjusted accrdingly t reflect the minutes t expiratin. In this example, if the business day preceding the Wednesday hliday is a Tuesday, the minutes t expiratin fr the weekly VIX ptins expiring that week wuld be 31 days 390 minutes. VIX Weekly ptins will trade during the same Regular and Extended Trading hurs as standard (mnthly) VIX ptins. New VIX Weekly ptins expiratins will generally be listed n Thursdays (excluding hlidays) and will expire n Wednesdays. Up t six cnsecutive VIX Weekly expiratins may be listed. The same strategy-based custmer margin requirements that apply t shrt standard (mnthly) VIX ptins will apply t shrt VIX Weekly ptins - a basic margin requirement f 20% with a 10% minimum (20% basic / 10% minimum). The same prtfli margin and net capital requirements that apply t standard (mnthly) expiring VIX ptins will apply t VIX Weekly ptins. Margin and net capital requirements are described in detail belw. PRODUCT DESCRIPTION DISCUSSION On Thursday, Octber 8, 2015, CBOE plans t list fr trading ptins with weekly expiratins (Weeklys) n the CBOE Vlatility Index (Ticker Symbl: VIX). With the exceptin f mre frequent expiratin dates, VIX Weekly ptins generally have the same cntract specificatins as mnthly expiring cntracts. VIX Weekly ptins are series f the VIX ptin class. As with standard (mnthly) VIX ptins, VIX Weekly ptins have Eurpean-style exercise; ptins generally may be exercised nly n the Expiratin Date. New expiratins fr VIX Weekly ptins will generally be listed n Thursdays (excluding hlidays) and will expire n Wednesdays. If a Wednesday is an Exchange hliday, the exercise settlement value wuld be calculated n the preceding business day. Trading in VIX Weekly ptins will rdinarily cease n the business day (usually a Tuesday) preceding the day n which the exercise-settlement value is calculated. As with standard (mnthly) VIX ptins, VIX Weekly ptins have: a cntract multiplier f $100; a minimum tick fr ptin series trading belw $3 f 0.05 ($5.00); and a minimum tick fr ptin series trading abve $3 f 0.10 ($10.00) The same minimum strike price intervals that apply t standard (mnthly) VIX ptins will apply t VIX Weekly ptins -.50 f a pint fr ptins with a strike price less than $15, 1 pint fr ptins with a strike price less than $200; and 5 pints fr ptins with a strike price greater than $200. Up t six cnsecutive VIX Weekly expiratins may be listed. 2

3 Exercise will result in delivery f cash n the business day fllwing expiratin. The same prcedure used t calculate the exercise-settlement value fr standard (mnthly) VIX ptins will apply t VIX Weekly ptins, except that the exercise settlement value fr VIX Weekly ptins shall be a Special Opening Qutatin (SOQ) f the VIX index calculated using prices f P.M.-settled SPX End-f-Week (SPXW) ptins (SPX Weeklys) rather than standard SPX ptins. As with standard (mnthly) VIX ptins, VIX Weekly ptins will utilize the symbl VRO fr the exercise-settlement value. The exercisesettlement amunt is equal t the difference between the exercise-settlement value and the exercise price f the ptin, multiplied by $100. N psitin and exercise limits are in effect fr VIX ptins. Each Trading Permit Hlder (ther than a market-maker) r TPH rganizatin that maintains an end f day psitin in excess f 100,000 VIX ptin cntracts (including VIX Weekly ptins) fr its prprietary accunt r fr the accunt f a custmer, shall reprt certain infrmatin t the Regulatry Divisin (in lieu f the frmer Department f Market Regulatin). The TPH must reprt infrmatin as t whether such psitin is hedged and, if s, a descriptin f the hedge emplyed e.g. stck prtfli current market value, ther stck index ptin psitins, stck index futures psitins, ptins n stck index futures; and fr custmer accunts, prvide the accunt name, accunt number and tax ID r scial security number. Thereafter, if the psitin is maintained at r abve the reprting threshld, a subsequent reprt is required n Mnday fllwing expiratin and when any change t the hedge results in the psitin being either unhedged r nly partially hedged. Reductins belw these threshlds d nt need t be reprted. An address fr submitting required reprts is as fllws: indexreprting@cbe.cm. Regular trading hurs fr VIX Weekly ptins are 8:30 AM t 3:15 p.m. CT. Extended trading hurs are 2:00 a.m. t 8:15 a.m. CT. Detailed prduct specificatins may be fund n the CBOE website at the fllwing URL: CUSTOMER STRATEGY-BASED MARGIN Fr the purpse f calculating margin requirements (as well as risk based haircuts), the same rules that apply t standard (mnthly) VIX ptins will apply t VIX Weekly ptins. Because standard (mnthly) VIX expiratins and VIX Weekly expiratins are series within the same VIX ptin class, reference is made t VIX ptins generally in the remainder f this circular. Fr purchases f ptins with mre than 9 mnths until expiratin, Exchange rules permit a minimum margin requirement f 75% f the ttal cst (ptin current market value) t be depsited (maintained). When time t expiratin reaches 9 mnths, the ptin n lnger has value fr margin purpses. Purchases f puts and calls ptins with 9 mnths r less until expiratin must be paid fr in full. The initial and maintenance margin requirement fr a shrt put r call is 100% f the ptin prceeds* plus 20% f the aggregate cntract value (current (spt r cash) index value x $100) minus the amunt by which the ptin is ut-f-the-mney, if any, subject t a minimum fr calls f ptin prceeds* plus 10% f the aggregate cntract value and a minimum fr puts f ptin prceeds* plus 10% f the aggregate put exercise price amunt. (*Fr calculating maintenance margin, use current market value instead f ptin prceeds.) Additinal margin may be required pursuant t Exchange Rules 12.3(h) and Spreads and straddles are permitted fr VIX ptins having equivalent aggregate underlying values. In respect f calendar spreads, TPH rganizatins are reminded that VIX ptins have Eurpean-style exercise. It is pssible that the spread margin requirement culd be, r becme, insufficient t cver the assignment bligatin n the shrt ptin if the lng ptin cannt be exercised and it is trading at less than its intrinsic value in relatin t the exercise settlement value calculated n the Expiratin Date. Therefre, TPH rganizatins must apply huse margin requirement plicies and prcedures fr 3

4 calendar spreads with Eurpean style ptins in rder t insure that sufficient margin is held t cver the risk. Where a shrt ptin cntract is cvered by an escrw agreement meeting the requirements f CBOE Rule 12.3(d)(2), n margin need be required. CUSTOMER PORTFOLIO MARGIN VIX ptins are eligible fr prtfli margining. VIX ptins will be accmmdated in The Optins Clearing Crpratin s (OCC) Brad-Based Index Vlatility Indexes Prduct Grup (500), and included in the VIX ptins class, with a 75% ffset with the ther classes cntained in that Prduct Grup. The prtfli margin requirement fr VIX ptins will be equal t the maximum ptential lss ver a range f market mvements cvering +/-20%. All psitins are subject t a minimum charge f $37.50 per cntract, except that the minimum charge fr lng ptins will nt exceed the market value. These requirements are Exchange minimums. Huse prtfli margin requirements may be greater. OPTION MARKET MAKER MARGIN REQUIREMENTS Pursuant t CBOE Rule 12.3(f), VIX ptin psitins f a VIX ptins market-maker may be margined n a basis that is satisfactry t the market-maker and carrying brker-dealer. VIX ptins and related futures psitins f an ptins market-maker are eligible fr crss-margin treatment in a crss-margin accunt carried fr the ptins market-maker by a Clearing TPH that clears and carries bth the VIX ptins and related futures psitin. A futures accunt must be used fr crssmargining. Crss-margining f VIX ptins and related futures psitins must be undertaken in a crssmargin accunt that is exclusive t CBOE and the CBOE Futures Exchange, LLC (CFE) prducts. The SPAN file will be updated t take any risk ffsets between VIX ptins and related futures int cnsideratin and render a margin requirement accrdingly. Additinally, a risk-based haircut (RBH) must be cmputed n the crss-margin accunt psitins. If the RBH is greater than the SPAN margin requirement, the RBH must be used as the margin requirement in lieu f the SPAN margin requirement. It shuld be nted that at OCC, VIX ptins are eligible fr a market prfessinal crss-margin accunt, in which ffsetting psitins in VIX ptins and related futures may be cmbined. A crss-margin accunt fr a market prfessinal must be set-up exclusively fr carrying CBOE and CFE prducts that are crssmarginable. OCC currently requires that bth VIX ptins and related futures be cleared and carried by the same OCC clearing member (i.e., a dual brker-dealer / FCM) in rder t establish market prfessinal crss-margin accunts at OCC. NET CAPITAL REQUIREMENTS Fr risk-based haircuts, VIX ptins will be accmmdated in OCC s Brad-Based Index Vlatility Indexes Prduct Grup (500), and included in the VIX ptins class, with a 75% ffset with the ther classes cntained in that Prduct Grup. 1 The risk based haircut will be equal t the maximum ptential lss calculated ver a range f market mvements cvering +/-15% fr ptins market-makers and all ther brker dealers. All psitins are subject t a minimum charge f $25 per cntract, except that the minimum charge fr lng psitins will nt exceed the market value. VIX futures will be included in the same ptin class with a 100% ffset. Fr thse firms nt utilizing risk based haircuts, the haircut will be calculated pursuant t the alternative strategy based methd f SEC Rule 15c3-1a. 1 Risk based haircuts may be applied pursuant t SEC Rule 15c3-1a (Appendix A). 4

5 Additinal Infrmatin: With respect t prduct specificatins, questins regarding this Regulatry Circular shuld be directed t Dennis O Callahan, Research Department, at (312) With respect t margin and net capital, questins regarding this Regulatry Circular shuld be directed t CBOE s Regulatry Interpretatins and Guidance team at (312) r reginterps@cbe.cm. 5