Edward Tilly CBOE Chief Executive Officer Risk Management Conference Europe Opening Remarks Thursday, September 4, 2014 9:00 9:30 a.m. Thank you, Paul. And thanks to all of you for joining us for CBOE s 3 rd Annual European Risk Management Conference. We are delighted to be here in Ireland with you. We held our 30 th annual U.S. Risk Management Conference earlier this year, and we are thrilled now to make RMC an annual event in Europe, as well. RMC is uniquely focused on portfolio management strategy. We select topics and speakers that we think will deliver content that will be 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. 1
Your participation is what makes it truly unique, and I want to thank you for that. Before introducing our keynote speaker, I will share a few VIX initiatives that I hope you find of interest. This year s agenda reminds me that we are really at the beginning of the evolving VIX story. The opportunities that have emerged as a result of a tradable VIX continue to shape the volatility space, and users here in Europe are increasingly helping to define that space. Though, by definition, a measure of U.S. market volatility, VIX has become the de facto measure for market volatility worldwide. The global reach of VIX can be seen by the early and very favorable response to our Extended Trading Hours initiative in VIX futures. Late in 2013, we lengthened the VIX futures trading day by 5 hours and 45 minutes to enable European-based customers to trade in their local trading hours. In June, we further extended VIX futures trading to nearly 24 hours to accommodate Asian market hours, as well as a growing worldwide user base. Now, an average of nearly 10 percent of all VIX futures trading 2
takes place outside of regular U.S. trading hours. On days when global events trigger higher volatility, we ve seen that figure climb to more than 20 percent. We re also seeing a good mix of customers early on, another indicator of the broadening universe of VIX market participants. We look forward to launching extended trading hours for SPX and VIX options later this year. The new session for those products is planned to run from 2:00 a.m. through 8:15 a.m., Chicago time -- or 8:00 a.m. to 2:15 p.m. London time -- Monday through Friday. There will be a 15 minute gap before regular U.S. hours resume at 8:30 a.m. The target start date is the fourth quarter of 2014, pending SEC approval and completion of necessary systems enhancements. We continue to diversify our VIX product line to provide even moretargeted tools for risk management. Last year at this conference, we announced the launch of our new Short-term VIX Index, ticker symbol VXST. This year, we launched futures and options on the Short-term VIX. Although the recent low-volatility environment has made for a slow start in these products, we -- and I know many of you -- continue to believe in the inherent utility of a short-term VIX product. To that end, 3
we have launched targeted educational and social media programs to more broadly expose customers to VXST, and how it relates to VIX. We are also preparing to launch our next tradable VIX product in the form of futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index, the first volatility index based on U.S. government debt. The VXTYN Index is calculated by applying our VIX methodology to futures options data from CME Group's 10-year U.S. Treasury note contract. We began disseminating the index values in May 2013, and I am pleased to announce today that we will begin trading VXTYN futures on November 13. We are thrilled to introduce a VIX futures product that can enable customers to better manage interest-rate risk. To a great extent, the dramatic growth story of VIX futures and options has overshadowed the continued growth in SPX trading, which is being driven by the tremendous popularity of our SPX Weeklys product. First introduced by CBOE in 2005, Weeklys options are now available on hundreds of indexes, equities, ETFs and ETNs, and have become a very popular and actively-traded risk management tool. Today, SPX 4
Weeklys account for one-third of all SPX options traded, and average over a quarter of a million contracts per day. Given the increasing significance of SPX Weeklys trading, I am pleased to announce that on October 6, CBOE will begin to include SPX Weeklys options series -- expiring every Friday, except the third Friday of each month -- in the CBOE Volatility Index calculation. Currently, only SPX options with monthly expirations are used in the calculation. The inclusion of SPX Weeklys will allow VIX spot values to be calculated with the S&P 500 Index option series that most precisely match the 30-day target timeframe for expected volatility that the VIX Index is intended to represent. The robust market in our SPX Weeklys product enables that change and makes it a meaningful one. While enabling the VIX Index to evolve and keep pace with changes in the underlying SPX options market, this change will not impact our tradable VIX products. The final settlement value for VIX futures and options will continue to use the same VIX formula and the opening prices of standard (i.e., 3 rd 5
Friday expiration) SPX option series. Press releases on the VIX enhancement and the launch of VXTYN futures may be found at the back of the room. I am grateful for the opportunity to share these new developments with you today. By working closely with customers like you, in forums like this one, we can continue to create products and services that add value to your trading experience and expertise. Over the years, we ve received great feedback and suggestions from RMC participants on ways to improve products and services. As an example, CBOE originally offered Weeklys expiring on a near-term Friday and Quarterlys expiring at end of every quarter until we received two very specific requests from RMC participants.. Could CBOE offer SPX Weeklys with more expirations out at least 5 weeks? And, while we were at it, could we offer end-of-month SPX options? I am pleased to say we were able to act upon both requests, with good results for our customers and our markets. 6
CBOE continues to create new listings for non-standard options expirations. First Weeklys, then Quarterlys and, most recently, End-Of-Month options. Clients continue to tell us that having more listed expiration dates to choose from enabled them to more precisely meet their needs. I hope this inspires you to share your thoughts, suggestions or questions with me -- or anyone from the CBOE team -- throughout the conference. Also joining us are representatives from our valued index-provider partners, Standard and Poor s and Russell Indexes, who are also looking forward to meeting you. The ability to connect with you one-on-one, formally or informally, is one of the benefits to a conference like this one. We look forward to getting to know you better in this wonderful setting. Thank you again for joining us. 7