Now that it has been one year since the introduction of TAS trading at CFE, the writer feels that a recap and brief YTD snapshot is in order. Responding to market participants need to effectiviely price VIX futures near the end of day, CFE introduced TAS transactions on November 4, 2011. For those not familiar with Trade at Settlement, let us spend a few moments go over the features offered by TAS.
A TAS transaction is a transaction in a Contract at a price or premium equal to the daily settlement price, or a specified differential above or below the daily settlement price, for the Contract on a trading day. The actual amount of a TAS transaction price or premium is determined subsequent to the transaction based upon the daily settlement price of the Contract. TAS transactions in VIX futures may be transacted on CFE’s trading system as spread transactions, as block trades and as Exchange of Contract for Related Position transactions. Market participants will be able to enter VIX futures orders in a TAS order book during the trading day at a price equal to that day’s VIX futures settlement price, or at a specified differential above or below the daily settlement price. Completed TAS transactions are confirmed during the trading session.
So those are the mechanics behind TAS, but why are they used ?
TAS transactions are aimed at helping traders even out end-of-day price exposure in VIX futures. For example, issuers of exchange traded notes (ETNs) and exchange traded funds (ETFs) linked to VIX futures frequently hedge near the end of the VIX futures trading session to align ETN and ETF daily redemption values with VIX futures settlement prices. With TAS transactions, users can hedge VIX futures throughout the trading day and receive greater price certainty relative to the daily settlement price. And their utility has been not gone unnoticed a to date TAS traffic accounts for nearly 8.5% of the VIX futures ADV.
For more information on TAS click to read to original circular http://tinyurl.com/a2p8lud