Risk & Compliance

Trading Firm Fined $1.3M Over VIX Misconduct

Akuna Securities allegedly submitted improper trades to influence the final settlement value of the CBOE's measure of stock market volatility.
Matthew HellerFebruary 4, 2019
Trading Firm Fined $1.3M Over VIX Misconduct

Options trading firm Akuna Securities has been fined nearly $1.3 million for submitting improper trades to an auction that is used to calculate the final settlement value of a popular gauge of stock market volatility.

CBOE Global Markets’ Volatility Index, known as VIX, measures 30-day volatility for U.S. stocks. The final settlement value is calculated using the opening prices of constituent based on S&P 500 Index (SPX) options that are determined through an automated auction.

SPX option series that have a zero bid price are excluded from the VIX methodology.

According to the CBOE, Chicago-based Akuna submitted “strategy orders” to the auction on three expiration dates for VIX derivatives between November 2016 and November 2017.

Those orders, the CBOE said in a decision accepting a settlement, were “composed of a strip of certain SPX options in order to flatten Akuna’s exposure from its expiring [derivative] positions.”

In addition, Akuna allegedly submitted minimum increment SPX option orders to increase the likelihood that certain SPX option series included in its strategy order would be bid and therefore included in the final VIX settlement value.

As a result, the exchange said, the final settlement value on the three expiration dates included certain SPX options series that otherwise would not have been included due to the zero bid rule.

To resolve the CBOE’s allegations, Akuna agreed to pay a total fine of $1,275,000 and disgorge the $6,726 that it made from the improper trades.

The Wall Street Journal, citing a person familiar with the case, said the CBOE did not find that Akuna intended to manipulate the auction. But sparse trading in the monthly auction tied to the VIX last year raised concerns about whether it was being tampered with by traders.

Researchers at the University of Texas noted in a 2017 study that there were significant increases in trading volumes of S&P 500 index options at the time of VIX settlements.

Akuna was one of the first trading firms to trade CBOE’s bitcoin futures product. It is also a big investor in the market for cryptocurrencies.