ETFs May Soon Track Interest-Rate Volatility Index

ETF Trends

The Chicago Board Options Exchange is set to launch an interest rate-based volatility index. The so-called SRVX Index is intended to give investors a transparent measure of interest rate swap volatility. Investors can expect focused exchange traded funds to launch that will track this.

“Interest rate swaps and swaptions together are the most actively traded derivatives in the OTC market, and we believe the CBOE Interest Rate Volatility Index will enable participants to more efficiently assess risk in this enormous asset class,” William J. Brodsky, CBOE Chairman and CEO said.

The new CBOE Index will give investors the same benefits that their equity focused benchmarks give to clients, in the form of fixed income.  The SRVX Index is calculated using data provided by major interdealer brokers in the swaption market, applied to a formula similar to the methodology for the CBOE Volatility Index, reports Simon Smith for ETF Strategy. [Volatility ETFs: Checking in on the TVIX Premium]

For the first time, the CBOE NASDAQ-100 Volatility Index futures had trading volume that passed two million contracts in May. The CBOE Futures Exchange announced that May 2012 was the most-active trading month in CFE history, reports PR NewsWire. This is indicates investors appetite for volatility-linked investments and that market uncertainty still dominates. [VIX ETFs Thrive on Volatility and Risk Aversion]

CBOE currently publishes data on more than two dozen volatility-related benchmarks and strategies. The CBOE’s Volatility Index (VIX) has become the stock market measure of market volatility and sentiment. [ETF Performance Report: May Storms]

The SRVX Index will be calculated by using data from major dealers in the swaps and options market and will apply a similar formula to what is used for the CBOE Volatility Index.

Tisha Guerrero contributed to this article.

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