One of Wall Street’s most popular and widely followed measures of volatility is being manipulated, causing billions of dollars in losses every year to investors who are none the wiser. This is the claim made by an anonymous whistleblower in a letter sent to the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The letter outlines how trading firms have been taking advantage of the VIX by moving it up or down by posting quotes on S&P options without actually trading or using any capital. This manipulation, as alleged in the anonymous letter, has led to many billions in profits being taken from both retail and institutional traders and into the hands of unethical electronic option market traders.
The letter goes on to allege that the manipulation of the volatility index has played a major role in the more recent wild swings of some volatility-linked exchange traded products (ETPs).
Coincidently, two banks, Credit Suisse Group AG and Nomura Co Ltd., announced last week that they would be terminating two ETPs that bet on low volatility in stock prices. Their announcement followed a drop in the ETP prices as the price of VIX futures rocketed following a major drop in the U.S. Stock Market on February 5.
Meanwhile, the SEC and CFTC have declined to comment.
It’s no secret that many investors believe, and have often come to terms with the notion that markets are being manipulated to benefit some more than others. As long as unscrupulous individuals have the ability to move the markets in their favor, the stock market will not be safe for investors looking to protect their savings and retirement accounts.
It’s no wonder why so many investors are turning to physical gold and silver to protect their assets from manipulation like we are seeing in the stock market. Having physical precious metals in your safe or in your retirement accounts insures that any further manipulation in the stock market, which we are bound to hear about, will not affect your savings or retirement.