Cboe Futures Exchange to cut duration of trading halts for certain futures
Cboe Futures Exchange, LLC (CFE) will update the duration of trading halts for standard-sized Cboe Volatility Index (“VX”) futures, Mini Cboe Volatility Index (“VXM”) futures, and S&P 500 Variance (“VA”) futures following a Level 1 or Level 2 Market Wide Circuit Breaker (MWCB) event.
The current duration for such halts is 15 minutes. On the effective date (expected to be November 2, 2020), this halt duration will be updated to be 10 minutes, subject to regulatory review.
Let’s note that a Level 1 market decline is a 7% decline in the price of the S&P 500 Index between 8:30 a.m. and 3:00 p.m. CT on a trading day as compared to the closing price for the preceding trading day. A Level 2 market decline is a 13% decline in that price from the preceding trading day.
Both Level 1 and Level 2 market declines trigger MWCB halts if the levels are breached prior to or at 2:25 p.m. CT on a trading day (11:25 a.m. CT on half days).
On the effective date, following a Level 1 or Level 2 market decline, CFE will automatically halt trading of VX, VXM, and VA futures for a period of 10 minutes. This is a change from the current halt duration of 15 minutes. This change will also apply to VX and VXM trade at settlement (“TAS”) contracts (VXT and VXMT) and to VA stub positions (VAO).
The halt duration for other CFE products subject to MWCB halts and for Cboe’s equity and options markets will remain 15 minutes for Level 1 and Level 2 MWCB events. Additionally, trading in all CFE products subject to MWCB halts and trading in Cboe’s equity and options markets will continue to be halted until the next trading day following a Level 3 market decline (which is a 20% decline in the S&P 500 Index from the prior trading day).
The purpose of the change is to align the halt period following a Level 1 or Level 2 Market Decline for VX, VXM, and VA futures with the halt period following a Level 1 or Level 2 Market Decline applicable to E-mini S&P 500 Index futures.
VX and VXM futures are futures on the Cboe Volatility Index. The VIX Index is a financial benchmark designed to be an up-to-the-minute market estimate of expected volatility of the S&P 500 Index. VA futures are futures based on the realized variance of the S&P 500 Index. Given the interrelationships between VX futures, VXM futures, VA futures, E-mini S&P 500 Index futures, and the S&P 500 Index, market participants may trade between, and conduct trading strategies involving, VX, VXM, VA, and E-mini S&P 500 Index futures.
CFE believes that retaining the current alignment between these halt periods will be beneficial to market participants. Among other things, CFE believes that retaining this alignment will reduce the risks to market participants that hold positions across these products that would exist if they were not able to trade in VX, VXM, and VA futures while trading is occurring in E-mini S&P 500 Index futures.