CFE Regulatory Circular RG12-27

Date: To: From: Re:

March 14, 2012 CBOE Futures Exchange Clearing Members Division of Regulatory Services Margin Requirements and Product Description for CBOE Crude Oil ETF Volatility Index Security Futures James Adams Michael Mollet William Speth (312) 786-7718 (312) 786-7428 (312) 786-7141

Exchange Contacts:

Key Points o On March 26, 2012, CBOE Futures Exchange, LLC (CFE) plans to list for trading CBOE Crude Oil ETF Volatility Index Security Futures (Ticker: OV). o The CBOE Crude Oil ETF Volatility Index (OVX) is an up-to-the-minute estimate of the expected volatility of the United States Oil Fund, LP (USO) calculated by using real-time bid/ask quotes of CBOE-listed USO options. o OV security futures have a $100 contract multiplier. Up to nine near-term OV contract months, plus up to five additional months on the February quarterly cycle, may be listed. o Pursuant to CFE Rule 517, CFE has established a customer margin requirement for OVX security futures. Long and short OV security futures contracts of a customer are subject to an outright margin requirement of 35% of the current market value. o CFE has updated its SPAN file to accommodate SPAN margining of OV security futures.1 The margin requirements for OV security futures are outlined in a chart below.
SPAN is a registered trademark of Chicago Mercantile Exchange Inc., used herein under license. Chicago Mercantile Exchange Inc. assumes no liability in connection with the use of SPAN by any person or entity.
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Product Description The CBOE Crude Oil ETF Volatility Index (OVX) is an up-to-the-minute market estimate of expected 30-day volatility of the United States Oil Fund, LP (USO). Calculation of the index is based on the CBOE Volatility Index (VIX Index) methodology, applied to options on the United States Oil Fund, LP. The CBOE Crude Oil ETF Volatility Index uses real-time bid/ask quotes of nearby and second nearby options with at least 8 days left to expiration, and weights these options to yield a constant, 30-day measure of expected volatility. The CFE will list cash-settled security futures contracts on the CBOE Crude Oil ETF Volatility Index on or about March 26, 2012, under the ticker symbol OV. The contract multiplier will be $100. The minimum tick for OV security futures will be 0.05 points, equal to $5 per contract. Initially, CFE plans to list OV security futures expiring in May, June and July 2012. CFE may list up to nine near-term OV security futures contract months plus up to five additional months on the February quarterly cycle. The last day to trade expiring OV security futures contracts will be the day before the Final Settlement Date. The Final Settlement Date for OV security futures will be the Wednesday that is thirty days prior to the third Friday of the calendar month immediately following the month in which the contract expires. If the third Friday of the month subsequent to expiration of the applicable OV security futures contract is a CBOE holiday, the Final Settlement Date for the contract shall be thirty days prior to the CBOE business day immediately preceding that Friday. OV security futures are A.M.-settled contracts; the final-settlement value for OV security futures shall be a Special Opening Quotation ("SOQ") of the OVX Index calculated from the sequence of opening prices, as reported by CBOE, of a single strip of USO options expiring 30 days after the Final Settlement Date. The opening price for any series in which there is no trade shall be the average of that option's bid price and ask price as determined at the opening of trading. Exercise will result in delivery of cash on the business day following the Final Settlement Date. The final settlement value will be rounded to the nearest $0.01. If the final settlement value is not available or the normal settlement procedure cannot be utilized due to a trading disruption or other unusual circumstance, the final settlement value will be determined in accordance with the rules and bylaws of The Options Clearing Corporation. Please note that the time to expiration used to calculate the SOQ of the OVX Index on the Final Settlement Date shall be 30 days plus 390 minutes. This adjustment is intended to reflect the fact that USO options are P.M.-settled contracts that close at 3:00 PM Chicago time.

OV security futures contracts are subject to position limits under CFE Rule 412. A person may not own or control: (1) more than 50,000 contracts net long or net short in all OV security futures contracts combined; (2) more than 30,000 contracts net long or net short in the expiring OV security futures contract month; and (3) more than 13,500 contracts net long or net short in the expiring OV security futures contract held during the last five (5) trading days for the expiring OV security futures contract month. Questions concerning the OVX Index or contract terms for OV security futures may be directed to Michael Mollet at (312) 786-7428 or Bill Speth at (312) 7867141. Minimum Margin Requirements CBOE Crude Oil ETF Volatility Index (OV) Outright Initial 35% Maintenance 35%

Customer Rate

Intra-Commodity Rates (Calendar Spreads) Note: Requirement is on the current market value of the long or short security future, whichever is greater. Initial 5% Maintenance 5%

Customer Rate

Other offsets are provided in Appendix A of CFE Rule 517. However, with the exception of calendar spreads, other offsets are not accommodated by SPAN and are unavailable in a futures account. It should be noted that OV security futures are eligible for portfolio margining only if they are carried in a securities portfolio margin account. A Market-Maker in security futures is not subject to a margin requirement under CFTC and SEC rules and regulations.2 CFE rules do not impose a margin requirement on Market-Makers in security futures. Clearing firms may carry the OV security futures positions of a Market-Maker in OV security futures on a good
In accordance with CFE Rule 517(n), the term "Market Maker" as used in this circular refers to a CFE Trading Privilege Holder or Authorized Trader that is registered with CFE as a market maker in security futures pursuant to CFE Policy and Procedure VII. Please refer to CFE Regulatory Circular RG11-04 for further information regarding the application and registration requirements for market makers in security futures on CFE.
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faith margin basis. However, to the extent that a Market-Maker in OV security futures does not maintain margin in its account for positions in OV security futures equal to at least 15% of their current market value, the clearing firm is required to take an undermargined capital charge for the amount of the deficit. In respect of intra-commodity offsets (calendar spreads), a rate of 3% is to be used for this purpose. Questions concerning margin requirements may be directed to James Adams at (312) 786-7718.