The volatility we have is troubling. And a product like VIX could be valuable to institutional investors who want to hedge against a precipitous drop in the market. But its quite clear that these indexes options can be manipulated. And when there were complaints about possible manipulation, the Cboe, as the marketplace, should have sprung in to action. Ex-SEC Chairman Harvey Pitt
Thats Ex-Securities and Exchange Commission Chairman Harvey Pitts take on allegations that a key measure of volatility in the market, the Cboe Volatility Index, is being rigged.
Check out his comments during a Friday morning interview with CNBC, which occur around the 2:30 mark:
An unidentified whistleblower earlier this week claimed to regulators at the SEC and the Commodity Futures Trading Commission that fake quotes for the S&P 500 index
are skewing levels of the Cboe Volatility Index
known as VIX, which reflects bearish and bullish options bets 30-days in the future on the S&P 500 to gauge implied stock-market volatility.
The VIX has underpinned a number of strategies described as so-called short-volatility, which imploded dramatically on Feb. 5 when it registered its largest percentage change in its history, cratering bets that volatility measures would fall, if not remain muted.
Short volatility products, notably, VelocityShares Daily Inverse VIX Short Term ETN
tumbled 90% in after-hours trade as the Dow Jones Industrial Average
plunged 1,175 points, or 4.6%, that session, marking its sharpest point drop in the blue-chip gauges 121-year history.
The Cboe Global Markets
, which oversees the VIX products, has said the whistleblower claiming manipulation had a fundamental misunderstanding of the relationship between the VIX index, VIX futures and volatility exchange-traded products, according to Cboe spokeswoman.
Quote References SPX +15.08 +0.55% VIX -1.42 -7.42%