Summer C-Level Series: Ed Tilly, CBOE

Terry Flanagan

What have been the main themes of your business so far this year?

CBOE continues to focus on expanding the use of our VIX and SPX products with our existing customers, but ultimately it’s also about broadening the user base.

Ed Tilly, CBOE

Ed Tilly, CBOE

We tell the SPX story – and the broad market exposure it can provide — every opportunity we get. These conversations are also a launching point to highlight the success of SPX Weeklys, allowing us to tell how new investors are coming into the market and using Weeklys in a completely different way than how SPX options have been used in the past.

We’ve also been focused on our ongoing initiative to expand trading outside of traditional U.S. trading hours, which has been very well-received. Any time there’s uncertainty, we see our user base and trading volume grow in VIX futures, which now can be traded virtually 24 hours a day, five days a week.

So our theme is really what we set out to do early on: continue to raise awareness of pure volatility trading in VIX and using our SPX product line – with focus on the SPX Weeklys. Our efforts have been concentrated on raising the awareness of and access to these products through extended trading hours and meeting the demands of users to trade VIX and SPX around the clock.

What has surprised you in 2014?

I’ve been amazed by the amount of controversy around HFT and market structure issues as a result of one book. The debate is ongoing, with details focused on each and every aspect raised in the book. What I think is not surprising – but certainly is refreshing – is SEC Chair White’s data-driven and methodical approach to reviewing market structure issues. There has been no knee-jerk reaction. Rather, her approach has been extremely measured. The Chair went as far as saying that the markets are not rigged. While the Commission will certainly examine market structure holistically, they are not going to start pointing fingers and looking at problems that they just don’t see existing.

So, I’m surprised by the level of ongoing controversy, which I thought would’ve simmered down a little bit more than it has by now, but we could not be more pleased and appreciative of the SEC’s approach to studying these issues.

What are your expectations for the duration of 2014?

From CBOE’s perspective, we will remain focused on broadening access to our markets and raising the level of education in and around our product set, primarily around pure volatility trading and our entire SPX product line.

There’s a growing demand for our VIX and SPX products, so we’ll continue promoting extended trading hours in VIX futures, and later this year we plan to extend hours in SPX and VIX options, as well.

We also have an exciting new product in the pipeline — volatility futures based on the 10-year Treasury note – the first product for managing volatility of U.S. government debt. We plan to launch VXTYN futures early in the fourth quarter, and we couldn’t be more excited. This will take an entirely new effort of awareness and education — it will be an approach similar to the one we’ve taken with VIX, but will address a whole new user set.

We also plan to launch a new education app for mobile and tablet users, we are redesigning CBOE.com to feature even more trading tools than we have available now, and we’ll continue to highlight our education and business development efforts here and abroad.

As for the market, we’re often asked our opinion on the lower level of VIX. While in the short term, the current VIX level reflects a certain amount of comfort, at least for the next 30 days or so, if we look to the futures contracts over the next three to six months, we see the market expecting a return to a more ‘normal’ level historically for VIX. The VIX futures are at about 15 in September and then go up from there. We have no reason to think this won’t happen and we expect VIX to return to more normal levels.

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