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CFD and futures traders are probably already aware of the VIX index, a measure of the level of fear in the market which uses the number of open options contracts on the S&P 500 index as its basis. The original rationale for the VIX index was as a measure of market volatility but it has also become more popular as the underlying index for investment products like contracts for difference.

Whistleblower causes concern about VIX manipulation

More worryingly, however, an anonymous whistleblower wrote to the US financial markets regulators, the SEC and the CFTC, earlier this month, claiming that the VIX was being manipulated by trading firms that had worked out how to exploit a systemic flaw. They simply posted quotes on S&P options.

The CBOE, which is responsible for calculating the VIX, is naturally defending the index, but further fuel has been poured on the flames by a paper published by the University of Texas (by John Griffin and Amin Shams) which has argued that the settlement process can be gamed.

This is obviously worrying for those using ETFs or CFDs linked to the VIX, as nobody wants to trade a rigged market.

One area of focus has been the market for VIX ETPs (exchange traded products), which saw a lot of investors redeeming short volatility index trackers (i.e. a fund or product that behaves the opposite to the VIX) as volatility spiked early in February. Market participants like Swiss bank REYL & Cie are arguing there was a natural move by fund managers to adjust their VIX exposure by purchasing VIX futures, causing prices to spike. There was nothing suspicious in this, they argue.


While manipulation of the VIX has yet to be conclusively proven, any scandal affecting it will further undermine investor confidence in this index and others. This is concerning some financial advisers and producers of ETF products (as well as CFDs for that matter). If you can’t trust the underlying index, how can you trust the index-tracker?

The Financial Industry Regulatory Authority (FINRA) is now understood to be investigating further. Regular traders of the VIX will await its findings with interest.

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Vanya Dragomanovich

Vanya is an award-winning financial journalist who has worked in both television and newswires. She spent over 10 years at Dow Jones covering commodity markets, including metals, coffee, cocoa and oil. She also reported from the floor of the London Metals Exchange, and appeared on CNBC to discuss international metals markets. Since then she has written for several leading financial publications, including serving as commodities editor for FTSE Global Markets.

Vanya continues to cover international commodities markets globally, specialising in particular on metals and alternative energy. She is also the author of a book on CFD trading.

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