Whistleblower Exposes "Rampant Manipulation Of VIX"
But, as we concluded previously, you don't even have to intervene over some long period to keep options prices up; you can just submit bids in the pre-opening auction once a month and move the settlement price for that month.
There is a sort of hierarchy of manipulability in markets. At the top is Libor manipulation: Trillions of dollars of derivatives settled based on Libor, but Libor was calculated by essentially asking banks "what should Libor be?" The banks didn't even have to do any trading in order to push the number around; manipulation was, in effect, costless. (Later, with the fines, it was costly.)
At the bottom is, like, manipulating the price of a stock by trading that stock. There are cases of it! It's a thing. But it is a dumb thing; it really shouldn't work. If you buy a stock, you will push the price up, sure. But to make any money you then have to sell the stock, which should push the price right back down.
But if you are going to manipulate a tradable market -- as opposed to a made-up one like Libor -- then VIX looks pretty tempting.
The product that you trade (S&P 500 options) is different from the product where you make your money (VIX futures and options), and the trading market is in the relevant sense smaller than the derivative market: You can move a lot of value in VIX products by trading a small amount of value, in a confined period of time, in the underlying market. So you can cheerfully lose money executing the manipulation -- trading the S&P options -- and make back more in the derivative.
The question is - why did the whistleblower come forward now - a week after the total and utter collapse of XIV and the short-VIX debacle?
Blame-scaping VIX manipulation for 'volocaust' but remaining silent during years of VIX-monkey-hammering sounds more like 'bad-losers' - no matter how much we believe in the manipulation of this 'tail' that inevitably wags the entire market 'dog'.
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Full Whistleblower Letter To Regulators: