Cboe S&P 500

Variance (VA) Futures

What are Cboe S&P 500 Variance Futures?

Cboe S&P 500 Variance (VA) Futures offer a simple, transparent, and centrally-cleared alternative to over-the-counter (OTC) variance swaps. The new contract has a simplified trading and settlement process and an expanded listing cycle, providing market participants with an additional tool to manage or express views on volatility.

Key Benefits

Direct Trading in Variance Units: VA Futures contracts trade directly in variance units within a central limit order book (also known as a CLOB) on Cboe Futures Exchange, LLC (CFE). Trading in variance units enables trades to clear at the time of the trade and eliminates the need for end of day unit translations and restatements. Lastly, trading and clearing in variance units eliminates trading in one set of units and clearing in another, which can be a challenge for some backoffice systems.

Transparency: Users can access VA Futures contract data required to replicate a contract final settlement value using a convenient Cboe.com Variance Calculator web page. The Variance Calculator provides access to per-contract data and variance unit / vol-vega unit translation functionality detailed in the Variance Calculator User Guide

Simple Settlement: Final settlement values are based on annualized realized variance of daily S&P 500 Index returns over the lifetime of a contract.

Exchange Traded: VA futures are offered for trading on a regulated exchange with a transparent market in which bids, offers, and transactions are made available through CFE market data.

Centralized Clearing: VA Futures contracts are centrally cleared by The Options Clearing Corporation (OCC), mitigating bilateral counterparty risk and challenges posed by uncleared margin rules (UMR).

Flexible Execution: VA Futures contracts support block trades and exchange of contract for related position (ECRP) transactions, facilitating a seamless transition from OTC variance swaps.

Integrated With SPX Product Suite: VA Futures contracts months correspond to listed contract months for standard SPX options.

Cboe S&P 500 Variance Futures Use Cases

Comparing Cboe S&P 500 Variance Futures vs. OTC Variance Swaps

Feature	Cboe S&P 500 Variance Futures	OTC Variance Swaps
Exchange Traded	Yes	No
Centrally Cleared	Yes (OCC)	No
Counterparty Risk	Mitigated through central clearing	Bilateral, can be significant
Contract Design	Straightforward, trades in variance units	Customizable, but complex
Settlement	Final settlement is the annualized variance of the S&P 500 Index over the life of a contract	Customizable, often based on realized variance
Execution Flexibility	Supports block trades and ECRPs, seamless transition from OTC	Highly flexible, but OTC-specific
Liquidity	Lead Market Maker Program	Varies, depends on counterparty relationships
Accessibility	Available to a wide range of market participants who have access to futures markets, including through an FCM.	Limited to institutional investors with ISDA agreements
Regulatory Compliance	Standardized terms, transparent rulebook	Challenges posed by uncleared margin rules (UMR). Subject to Dodd Frank business conduct rules and swap reporting obligations.

Resources

Disclaimers:
The S&P 500 Index is a product of S&P Dow Jones Indices LLC (“S&P DJI”), and the S&P 500 Index has been licensed to Cboe Exchange, Inc. for the purposes of creating the Cboe S&P 500 Variance Indicator. “Variance Indicator” means a series over time of realized or implied variance values, which series uses as input for its calculation, among other values, one or more of the following values: the value of one or more Standardized Options Contracts based on a Underlying S&P Index, the value of another financial interest based on an Underlying S&P Index, or the value of an Underlying S&P Index. S&P®, S&P 500®, SPX®, DSPX®, DSPBX, US 500 and The 500 are trademarks of S&P DJI or its affiliates, and have been licensed by Cboe Exchange, Inc. for certain purposes. Cboe S&P 500 Variance Futures settling into the Cboe S&P 500 Variance Indicator are not issued, marketed, sponsored or promoted by S&P Dow Jones Indices or its affiliates, and S&P DJI will have no liability with respect thereto.