Traders Will Now Get Alerts on VIX Turbulence

(Bloomberg) -- The exchange that oversees settlement of the stock market’s volatility benchmark, a monthly procedure that drew scrutiny amid allegations of manipulation, is adding precautions aimed at keeping traders informed if prices turn turbulent in its run-up.

Beginning this month, Cboe Global Markets Inc. will alert clients if it spots any developments that could impact the monthly settlements for VIX futures and options, the exchange said in an emailed statement Monday. Factors that could trigger a notice include major market-moving news, supply-demand imbalances in S&P 500 options or turbulent trading overnight.

The announcement is part of Cboe’s campaign to soothe worries that the monthly VIX settlement has been manipulated by traders -- an allegation made by a University of Texas professor and some analysts. Cboe has dismissed those concerns, which were fueled by several instances where the settlement price widely diverged from prevailing prices just before the monthly auction. Cboe has already introduced other enhancements to the settlement process, and auctions since then have gone smoothly, quieting complaints.

Traders will receive a notice before the market opens on the day the monthly options and futures on the VIX Index expire. Cboe won’t issue a notice if it doesn’t see any unusual activity, the exchange said.

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