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Cboe Futures Exchange plans launch of mini VIX futures

Stock MarketsJun 10, 2020 01:20PM ET
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© Reuters.

By April Joyner

NEW YORK (Reuters) - The Cboe Futures Exchange submitted a regulatory filing on Tuesday to launch mini futures on the Cboe Volatility Index (VIX) as it looks to expand its array of products that allow investors to guard against equity market gyrations.

The mini futures will be a 10th of the size of VIX futures but will have the same settlement dates, the exchange, which is owned by Cboe Global Markets (Z:CBOE), said in its filing https://cdn.cboe.com/resources/regulation/rule_filings/pending/2020/20-018-VXM-Product-Filing.pdf with the Commodity Futures Trading Commission. A launch date has not yet been set, but the exchange expects the mini futures to debut later this year.

VIX futures are commonly used to hedge against market declines, such as March's plunge in U.S. stocks that signaled the end of a nearly 11-year-old bull market.

Cboe previously offered mini VIX futures from March 2009 to February 2014. Since then, demand for VIX products has increased among retail investors, the exchange said. A smaller contract size would allow individual investors to buy such hedges at lower costs.

Standard VIX futures are not accessible to smaller accounts, said Matt Thompson, managing partner at Thompson Capital Management. At current prices for front-month contracts (VXc1), for instance, a $250,000 account would have more than 10% of its funds allocated to a single contract.

"The main sticking point with the original contracts is that the size is pretty big, so you need larger accounts, and it's hard to fine-tune exposure like we want to," Thompson said.

Even before the March sell-off, investors had expressed interest in mini futures, but demand for such a product has accelerated amid recent market turmoil, said Matt McFarland, vice president and head of futures at Cboe Futures Exchange.

"It's market conditions like we just experienced where the utility of the VIX really demonstrates itself," he said.

Cboe Futures Exchange plans launch of mini VIX futures
 

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