VIX Quirk Caused by Liquidity Shortage, Not Rigging, Cboe Says

(Bloomberg) -- Cboe Global Markets Inc. says not enough traders participated in the eye-catching April 18 VIX futures auction, meaning an innocent explanation -- not manipulation -- explains the events of that day.

“We want to be clear that we were disappointed with the 18th, and we saw it as a liquidity challenge and nothing more,” Cboe President Chris Concannon said during an earnings call on Friday.

To prevent a repeat, the exchange operator is seeking ways to lure in more market makers. Giving them better information about any imbalances between the number of contracts traders are seeking to buy and sell could smooth out the process, Concannon said. Traders are asking Cboe: “How do I trade with that imbalance?” he said. “They see that as a trading opportunity.”

Bloomberg News reported Thursday that U.S. markets regulators are probing Cboe’s widely used VIX, including the monthly settlement of futures contracts. Those auctions have recently arrived at prices way off prevailing levels from right before the settlements -- fueling suspicions someone might be rigging the process.

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