Cboe Throws Launch Date Punch at Crosstown Rival CME

Spencer Doar

Spencer Doar

Associate Editor

Aren’t people supposed be getting into holiday mode? Isn’t December supposed to be slow, with nothing but junior staff running around trying not to mess things up?  In the cryptocurrency space, that’s clearly not the case.

The CFTC on Friday said CME Group and Cboe Global Markets were okay to launch their respective bitcoin futures products through the self-certification process. CME quickly announced it would launch bitcoin futures on December 18, and then on Monday morning, Cboe announced a December 10 launch date and free trading for the first month to help the contract gain traction. Cboe’s contract will trade on the CFE, its futures exchange.

Despite the velocity at which developments occur in the crypto space, Cboe CEO and Chairman Ed Tilly said the exchange’s “conversations with the CFTC were very, very intense and I think as thorough as I can ever remember in launching a new product.”

Getting the right regulatory processes in place has been central for the product’s launch, as has assuaging concerns of traditional financial firms and traders who are leery of the existing crypto industry’s “Wild West” appearance. Exchanges have also worked to set the margin levels, currently 33 percent at Cboe and 35 percent at CME, as well as to address concerns over clearing and make sure the settlement process and relationships with the underlying spot exchanges are in order.

Besides the quantity of bitcoin represented by each contract – one for Cboe and five for CME –  the futures settle differently. Cboe partnered with Gemini, the digital asset exchange run by the Winklevoss twins, to use its closing auction price, while CME calculates an index based off of multiple crytpo exchange operators’ prices. For Cboe, this means layers of beneficial regulatory oversight – surveillance of activity on Gemini by Gemini, regulation by the state of New York, an information sharing agreement between Gemini and Cboe, the CFE’s own self-regulatory processes and now CFTC oversight.

The result is a “great interest” in the product. Tilly said a wide swathe of big operators in Chicago’s futures and options industry have already built out a crypto desk, and others are about to do the same as the product launch approaches.

“The one [market participant] that will be really new to us are the bitcoin dealers and miners who have not previously had the ability to hedge while maintaining their long positions in the physical,” Tilly said.

There are two obvious next steps that will further help in Wall Street’s adoption of bitcoin. One is launching options on the futures. Tilly does not see that happening immediately.

“I think it’s going to take months of settlements as they are expected to occur,” Tilly said. “That means auctions go off, futures price settles to those auctions, open interest builds, open interest rolls, expiration happens and the process repeats.”

The more mainstream retail investor potential lies in the seemingly inevitable launch of an ETF and then ensuing options on that vehicle. According to Coindesk’s Q3 2017 State of Blockchain report, 79 percent of those surveyed said they believed an ETF based on digital assets would be live by the end of 2018.

Other “Bits”

Recall that CFE is the first of Cboe’s exchanges to migrate to Bats’ technology in light of the integration of then-named CBOE Holdings and Bats Global Markets. Tilly said the launch of Cboe’s bitcoin futures on CFE will not impact the tech migration still slated to be live at the end of February.

With bitcoin becoming such a dominant story line and the source of water cooler conversation, it is easy to lose sight of some of the other recent developments at the Cboe.

On the backs of a couple of big trading players known to the masses as “50 Cent” and the “VIX Elephant,” Cboe set a record for VIX options volume on December 1 of 3.1 million contracts, breaking the previous record of 2.6 million contracts.

At the end of October, Cboe launched complex order functionality on its EDGX exchange. A month after launch, Cboe reported increasing adoption of the function with ADV up to 63,000 contracts. This is the same technology expected to power Cboe itself and C2 upon the completion of the aforementioned technology migration.

While bitcoin may nab the headlines, it’s clear there is plenty to keep the exchange busy during this supposedly dull holiday period in the markets.


Edited by Jim Kharouf, John Lothian and Sarah Rudolph

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