How can Cboe balance the need for increased liquidity in its newly launched Mini-VIX futures against potential cannibalization of its standard VIX futures market?

Introduction

Balancing increased liquidity in Cboe's newly launched Mini-VIX futures against potential cannibalization of its standard VIX futures market presents a complex product trade-off. This scenario involves weighing the benefits of expanding market reach and accessibility against the risk of diluting an established product line. I'll analyze this trade-off by examining market dynamics, user needs, and potential impacts on Cboe's overall strategy.

Step 1

Clarifying Questions (3 minutes)

• Based on market trends, I'm thinking the Mini-VIX futures were introduced to attract retail investors. Could you confirm if this is the primary target audience for the new product?

Why it matters: Helps define the user segments and potential market size Expected answer: Yes, primarily targeting retail investors Impact on approach: Would focus on retail-friendly features and marketing strategies

• Considering Cboe's revenue model, I assume the standard VIX futures contribute significantly to overall revenue. Can you provide insight into how critical the VIX futures are to Cboe's financial performance?

Why it matters: Helps assess the risk of cannibalization Expected answer: VIX futures are a major revenue driver Impact on approach: Would necessitate a more cautious approach to avoid significant revenue loss

• Looking at user behavior, I'm curious about the overlap between standard VIX and Mini-VIX traders. Do we have data on what percentage of standard VIX traders are also engaging with Mini-VIX?

Why it matters: Helps quantify the cannibalization risk Expected answer: Some overlap, but also new users entering the market Impact on approach: Would inform strategies to minimize cannibalization while maximizing new user acquisition

• From a technical perspective, I'm wondering about the scalability of our trading infrastructure. Can our current systems handle a significant increase in trading volume if Mini-VIX becomes popular?

Why it matters: Ensures we can support growth without technical issues Expected answer: Systems can handle increased volume, but may need upgrades Impact on approach: Would include technical considerations in the rollout strategy

• Regarding timeline, is there a specific urgency to boost Mini-VIX liquidity, or can we take a more gradual approach?

Why it matters: Influences the aggressiveness of our strategy Expected answer: Some urgency, but not at the expense of long-term stability Impact on approach: Would balance short-term liquidity goals with long-term market health