The Chicago Board Options Exchange (CBOE) today announced that it has developed and plans to launch Credit Default Options based on credit events, during the second quarter of 2007, pending regulatory approval. Regulatory approval for Credit Default Options on individual companies is expected shortly, and CBOE intends to file for Credit Default Basket Options soon. CBOE's Credit Default Options offer the opportunity to hedge the risk of adverse credit events such as bankruptcy and failure to pay.
"CBOE's Credit Default Options will bring great benefits and tremendous cost savings to a market that has exploded into a $26 trillion business. CBOE's product will provide investors with the advantages of a standardized, exchange-traded options contract, including the assurances of SEC oversight, triple-A rated clearing, increased price transparency and reduced trading costs. In addition, CBOE Credit Default Options will trade on our highly successful Hybrid Trading System," said CBOE Chairman and CEO William J. Brodsky. "This product is another example of CBOE leading the industry into new territory and doing the work to develop products that bring real value to the marketplace."
CBOE's Credit Default Options are binary call options that pay $100,000 when the Exchange confirms that a credit event, such as default on specified payment obligations, has occurred. If no such credit event occurs, the option expires with no value. Special procedures would apply in the event of a succession or redemption.
CBOE Credit Default Options will trade on the CBOE Hybrid Trading System, providing the advantage of instant point-and-click order executions and anonymity, along with the benefit of open outcry trading. The contracts will be cash-settled. The last trading day will be the third Friday of the expiration month, as it is for standard listed options, and trading hours will be 8:30 to 3:00 p.m. C.T. Detailed contract specifications are available on the CBOE website at http://www.cboe.com/CREDIT.
CBOE, the largest options marketplace in the U.S. and the creator of listed options, is regulated by the Securities and Exchange Commission (SEC). For additional information about the CBOE and its products, visit the CBOE website at: http://www.cboe.com/.
