How Wall Street’s ‘fear gauge’ is being rigged, according to one whistleblower

Cboe’s VIX products is the target of a whistleblower (Getty Images)

 

One of the most popular measures of volatility is being manipulated, charges one individual who submitted a letter anonymously to the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The letter makes the claim to regulators that fake quotes for the S&P 500 index are skewing levels of the Cboe Volatility Index which reflects bearish and bullish options bets 30-days in the future on the S&P 500 to gauge implied stock-market volatility (see excerpt from the letter below).

The flaw allows trading firms with sophisticated algorithms to move the VIX up or down by simply posting quotes on S&P options and without needing to physically engage in any trading or deploying any capital. This market manipulation has led to multiple billions in profits effectively taken away from institutional and retail investors and cashed in by unethical electronic option market makers. Continue reading