Displaying items by tag: manipulation

(Chicago)

There has been a lot of consternation over the last week about whether the Vix is being manipulated. In one incident last week, the Vix jumped significantly with no corresponding move in the stock market. The culprit apparently was a large options trade deeply out the money which shocked the benchmark. Following an investigation, the Cboe says that it was not market manipulation, but rather an order imbalance that caused the jump in the VIx’s measure. Speaking on whether the move amounted to market manipulation, the Cboe commented that “We reiterate that we believe these claims are without merit”.

FINSUM: Whether or not the market was being gamed, the bigger question is whether the the way the Vix is calculated is too fragile/sensitive. If a single trader with a moderately sized order can move the Vix this much, what does it say about the index?

(New York)

Everyone is blaming last week’s big volatility on the VIX index. Explanations for the big falls are swirling and include an over-reliance on VIX-linked funds and insurers’ volatility strategy. However, FINRA is now looking into another potential cause—deliberate manipulation of the VIX. FINRA suspects traders have been trying to deliberately influence the VIX to move the price of derivatives. The tip on the behavior was given by an anonymous whistleblower.

FINSUM: Given the track record of misbehavior (e.g. Libor), it would be no surprise if traders were trying to manipulate the VIX. However, it is unclear what role that might have had in last week’s crash.