The Chicago Board Options Exchange (CBOE) today announced that it has entered into a license agreement with CME Group that extends the reach of CBOE's volatility franchise. CBOE will apply its proprietary CBOE Volatility Index® (VIX®) methodology to price data of, initially, up to five products that will be listed on one of CME Group's exchanges and create new volatility benchmark indexes that it will license for use to CME Group. CBOE also will disseminate real-time data on the new benchmark indexes to CME Group and industry data providers.
CBOE, which introduced the VIX methodology in 1993 as the first measure of volatility in the overall market, retains ownership of both the methodology and the new volatility indexes that will be used by CME Group. The agreement grants CME Group a worldwide license to trade futures and options on futures products based on the new indexes being calculated by CBOE.
CBOE, through its partnership with Standard and Poor's, has license agreements allowing other exchanges -- including Euronext, Taiwan Futures Exchange, National Stock Exchange of India, and the Australian Stock Exchange -- to use the VIX methodology. The agreement with CME Group marks the first time that CBOE will apply its VIX methodology to non-CBOE product data to create new volatility index benchmarks.
"We are pleased to be able to further extend the application of CBOE's volatility benchmark index methodology by working with CME Group. Market participants in different commodity sectors will now have the opportunity to hedge volatility risk distinct from price risk," CBOE Executive Vice President Richard G. DuFour said. "VIX has become the accepted standard for measuring market volatility, and the new products that will result from this agreement illustrate the broad utility of this methodology." CBOE and CME Group have tentatively agreed that the first new volatility indexes could include crude oil, corn, soybeans and gold. CBOE and CME Group in the future may agree to make additional volatility indexes subject to the license agreement.
CBOE expects to begin dissemination of the volatility benchmark indexes by late summer 2010, with CME Group expected to launch a volatility contract on each of the indexes on one of its exchanges within about nine months of the first dissemination of each benchmark index.
CBOE, the leading exchange in the volatility space and the home of volatility benchmarks, strategies and products, now calculates and disseminates benchmark data on 11 different volatility-related products, including the widely followed VIX, the leading barometer of investor sentiment and stock market volatility. In addition to its suite of benchmarks and strategies, volatility options and futures contracts on VIX can be traded at CBOE and CBOE Futures Exchange (CFE), respectively.
