VIX Manipulation Costs Investors Billions, Whistle-Blower Says

A whistle-blower told U.S. regulators that a scheme to manipulate the VIX, the volatility gauge thrust into the spotlight last week during a wild trading session, costs investors hundreds of millions of dollars a month.

A Washington-based lawyer told the Securities and Exchange Commission and Commodity Futures Trading Commission — the nation’s top markets regulators — in a letter Monday that his client found a flaw that allows traders “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.” Billions in purportedly ill-gotten profits have been scooped up by “unethical electronic option market makers,” according to the letter.

The client wasn’t identified by name. He’s held “senior positions at some of the largest investment firms in the world,” according to the letter written by Jason Zuckerman of Zuckerman Law, who has appeared on Washingtonian magazine’s list of top whistle-blower lawyers in the nation’s capital.

Source: BloomberMarkets

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