February 13th, 2018
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, +0.26% are skewing levels of the Cboe Volatility Index VIX, -2.50% 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.
The whistleblowerâ€™s claims are consistent with those documented by John Griffin, professor of finance at the University of Texas and Ph.D. candidate Amin Shams in May 2017 in research that says the cost of manipulating less-liquid SPX options would be more than paid for by a successful bet on the direction of the VIX. The paper is consistent with the whistleblowerâ€™s conclusionâ€”that manipulators are moving prices of the SPX options by spoofing at settlementâ€”entering quotes for trades that are never executedâ€”to â€œpaint the tapeâ€� and, therefore, influence the value of expiring VIX derivatives.
<!– AD CAN GO HERE
END: AD CAN GO HERE –>
Leave a Reply
You must be logged in to post a comment.
Source Article from http://www.cryptogon.com/?p=52342