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

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The VIX, the volatility index, is a measure of how unstable the stock market is. According to at least one person one (some?) of the financial instruments derived from the VIX may have been manipulated and may have contributed in a big way to the serious downdraft we recently saw in equities.

(From MarketWatch)

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 SPX, +0.36% are skewing levels of the Cboe Volatility Index VIX, -3.98% 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)…

But.

…One error that market participants have pointed out is that Zuckerman and his client in the letter refer to the CME Group Inc., at one point rather than the Cboe Global Markets Inc., which oversees the VIX product.

“This letter is replete with inaccurate statements, misconceptions and factual errors, including a fundamental misunderstanding of the relationship between the VIX Index, VIX futures and volatility exchange traded products, among other things,” a Cboe spokeswoman said in a statement.

Click here for the article.

 

*Image: Screenshot/Marketwatch