Cboe Makes Related Futures Cross Order Permanent

July 21st | 2020

Cboe recently filed a rule change to make one of its COVID-19 response measures, electronic Related Futures Cross (“RFC”) Orders, a permanent feature. Pre-COVID-19, floor brokers could execute crosses of option combos (i.e., synthetic futures) on the trading floor on behalf of market participants who were exchanging futures contracts for related options positions. Because the Cboe floor was closed due to COVID-19, the Exchange adopted a rule to allow these transactions while it operated in all-electronic mode. This proved to be quite popular, so the Exchange is making the rule change permanent.

The purpose of RFCs is to swap related exposures. A market participant with a position in VIX options may, for example, prefer to hold a corresponding position in VIX futures to reduce margin or risk related to the option positions. That market participant may swap its VIX options positions with another market participant’s VIX futures positions that have corresponding risk exposure.

Thus, RFCs are riskless exchanges that carry no profit or loss for the market participants that are party to the transactions; instead, they are intended to provide a seamless method for market participants to reduce margin and capital requirements while maintaining the same risk exposure within their portfolios. Given the increased volatility that has come with COVID-19, it is easy to see the utility of RFCs in today’s trading environment.

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