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Another Rigged Market: Scientific Study Finds Systemic VIX Auction Manipulation

CHART: ZeroHedge

By Tyler Durden | 25 May 2017

ZERO HEDGE — To the list of ‘rigged’ markets (e.g. Libor, FX, Silver, Treasuries…) we can now add VIX (which explains a lot) as two University of Texas at Austin finance professors find “large transient deviations in VIX prices” around the morning auction, “consistent with market manipulation.”

As Bloomberg reports, in addition to being an index that is much quoted in articles about market complacency, the VIX is used as a reference price for derivatives: If you want to bet that stock-market volatility will go up, or down, you can buy or sell futures or options on the VIX. These products are cash settled: The VIX is not a thing you can own, so if your option ends up in the money you just get paid cash for the value of the VIX at settlement.  

CBOE gets an official settlement level of the VIX based on a special monthly settlement auction of S&P 500 options. The auction runs from 7:30 a.m to 8:30 a.m., Chicago time. Traders submit bids and offers for S&P 500 options, the auction matches buyers and sellers to find clearing prices, and the prices of those S&P 500 options are used to compute the official settlement level of the VIX. […]

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