Cboe Global Markets Inc said on Friday it was making changes to the auction process for its Volatility Index (VIX), known as Wall Street's fear gauge, which helped drive the exchange operator to record earnings in the latest quarter. Billions of dollars in derivatives products are tied to the Cboe's VIX, which measures the expected 30-day volatility conveyed by benchmark S&P 500 options prices at a monthly auction. But some in the market say a flaw in the calculation of the VIX allows trading firms to manipulate the index by posting quotes for S&P 500 options without actually trading, leading to imbalances and oversized moves right at settlement.
Cboe has said the suspicions of manipulation are without merit, but acknowledged that more liquidity in the auction would improve the process. "We have a variety of approaches that we're using, all with the sole goal of enhancing liquidity in the auction," Cboe President Chris Concannon said on a conference call with analysts after the company reported first-quarter results.
Cboe was enhancing the technology used for the auction, expanding distribution of messages to market participants about imbalances in the auction, and seeking to increase the number of market makers that provide buy and sell quotes for the auction, he said.
"We have been fielding inbound calls from our market makers and our end users that want to participate in those imbalanced orders because those are moneymaking opportunities for all market participants to offset."