CBOE and Bitcoin Futures
Chicago-based exchange is offering bitcoin futures that track prices from Gemini, one of several bitcoin exchanges. Institutions looking for exposure to this cryptocurrency in a regulated environment will have this chance through this futures offering.
The margin model allows customers to trade futures without providing full value of assets upfront, which may increase capital efficiency.
How CBOE Got Started
In 1973, the Chicago Board Options Exchange (CBOE) first opened for business and marked the first legitimate trading in options contracts available to investors. It revolutionized the industry by standardizing and regulating options trading as well as creating a clearinghouse to centralize trade settlement – eliminating investor concerns about money being lost or contracts not being honored. Furthermore, CBOE introduced options based on OEX and SPX indexes, giving more choice and control to its traders.
As it gained more insight into traders and investors’ needs and preferences, the CBOE steadily broadened its offerings to meet them. Beginning in the early 1990s with electronic options market making, and by 2005 it had become one of the world’s most active options markets, the CBOE launched an online option market in 2008 as well as European cash equities market and institutional foreign exchange market in 2015.
CBOE Global Markets continues to offer investors more choices by creating innovative trading products like the VIX index created in 1993 by CBOE Global Markets as a standardized measure of 30-day expected stock market volatility derived from call and put options with 30 days until expiration on the S&P 500 Index.
Though there have been past missteps at the company – such as failing to enforce or fully understand rules designed to curb abusive short selling – their performance as a self-regulatory organization has improved over time. Under an agreement reached with the Securities Exchange Commission (SEC), they agreed to pay a financial penalty and implement major remedial measures as part of a settlement settlement agreement.
CBOE provides investors with access to thousands of tradable options contracts across multiple markets – many created specifically for them by CBOE itself – for use as hedges or additional sources of income. Individual traders and institutions alike rely on CBOE’s quality options products; start your CFI education today with over 20 always-free courses and hundreds of finance templates and cheat sheets that CBOE provides free.
The Options Industry
Though bitcoin remains a highly sought-after investment, the futures market has experienced a marked decrease in enthusiasm since its launch in December 2017 (XBT futures) of which prices quickly skyrocketed to nearly $20,000. Since then, prices have steadily decreased; now trading near $4,000. Cboe’s decision shows investors’ search for safer ways to bet on crypto, futures may offer safer bets on cryptocurrency investments.
Cboe Digital hopes that applying its extensive stock and options market expertise to crypto will give it more respectability within the industry. That was one of the primary motivations behind its acquisition of ErisX in 2022, creating a US-based regulated crypto spot exchange and clearing house with trust, transparency, and responsible innovation at its core, according to Palmer in Markets Media interviews.
Cboe Futures Exchange recently received approval from the CFTC to launch margin-based futures on bitcoin and ether, with plans to begin trading and clearing them starting January 11, 2024. Cboe Digital offers margin requirements published daily on its website; SPAN compatible risk parameter files also facilitate central clearing.
Cboe Digital is also working on several cryptocurrency-related projects. As an active supporter of the Pyth network – an open distributed ledger technology platform that enables users to create and manage tokens – it plans on publishing limited derived data from one of its four US equity exchanges to this network by the fourth quarter.
Dan Pipitone, co-founder and president of online brokerage TradeZero, says traders are also seeking intraday-expiring calls and puts for cryptocurrency, to allow for better hedging strategies throughout the day without waiting to buy/sell at specific moments in time. Volatility could actually help this development as people become more aware of hedging strategies as part of an overall portfolio approach.
CBOE Global Indices
Cboe Global Markets Inc, operates as an exchange network. The Company offers trading options on market indexes such as VIX as well as individual stock and ETP options, corporate bond index and equity index options, futures contracts and other derivatives to its global customer base. Cboe serves customers worldwide across four segments – Options North American Equities Futures Europe Asia Pacific Global FX
The Quote Overview page presents real-time prices and trading volumes for one symbol. Data updates throughout the day as trades are reported to Cboe BZX Exchange (indicated by flash). Prices reflect last sale prices as well as previous close and high. Volume represents all pre-market and post-market trades. Typically markets open at 9:30 AM ET and quotes remain valid through 4:00 PM ET except if markets close before then.
CBOE provides premium subscribers with access to an extensive library of historical options volume data. This data includes Opening, Closing and High/Low trade prices along with volume for each day adjusted for splits; users may download this information by product type or for an entire month, year or more.
CBOE’s Global Index Feed offers accurate, timely and reliable market data across an extensive selection of stock, commodity and bond indices to enable traders to make sound trading decisions. This feed was designed to give traders the information needed to support their strategies and enhance business performance.
CBOE also provides access to real-time index data that can help develop or refine strategies and strengthen existing ones. Their CBOE Global Indices Feed contains an exhaustive list of index values which are updated every 15 seconds during trading hours; both web-based applications and direct connection APIs offer this feed.
Cboe’s index portfolio has expanded with the debut of its unique Cboe S&P 500 Dispersion Index (DSPX), designed to measure expected dispersion within the S&P 500 index and is founded on the idea that higher market volatility leads to reduced returns.
CBOE Digital
Cboe Digital saw revenues and derivatives growth during its second-quarter performance, as well as data and access solutions expansion, according to CEO Edward Tilly’s comments on their earnings call. Unfortunately, however, hiring has decreased due to ongoing regulatory uncertainties; Tilly suggested this might help attract more institutional clients with margin futures being approved by CFTC.
Palmer noted the company’s upcoming launch of margin Bitcoin and Ether contracts will offer another way of trading these assets with less capital investment. Instead of fully collateralized futures contracts requiring customers to post the full contract amount upfront, margin contracts only require customers to post a percentage, significantly reducing risk of default. Furthermore, trades will be executed and cleared through approved Futures Commission Merchants with Cboe Digital acting as its clearinghouse reducing default risks.
Cboe Digital plans to release its products later this year. Initially offering financial settled margin futures contracts and later providing physical ones pending regulatory approval. Palmer believes this launch of margin futures will position Cboe Digital as the first U.S. regulated crypto-native exchange and clearinghouse combination platform that supports both spot trading and leveraged derivative trading by 2024.
He adds that the company has been investigating ways to expand its role as a clearinghouse for crypto assets beyond margin derivatives. Recently, it received approval as a registered derivatives clearing organization (DCO), meaning it can facilitate trades from exchanges, DCMs and traditional financial markets alike.
As part of its expansion plans, Cboe Digital plans to join the Pyth network in 2024 as part of its growth plans, linking leading crypto and legacy financial market participants together in order to promote standardization and liquidity within these markets. According to Palmer, joining this initiative represents an invaluable opportunity for Cboe Digital and shows their dedication towards supporting cryptocurrency and wider industry developments.
Cboe will begin publishing limited derived equities market data via one of its four US equity exchanges in the fourth quarter, according to Palmer. He hopes that this move will expand Pyth network’s capabilities while providing users with real-time information regarding pricing across multiple venues.