BATTLEFORWORLD – February 13, 2018: Several years ago I was informed by a source that there is an “underground stock market” and that it has all the information about how stocks are to perform. This information, the top tier financial elites allegedly use to invest and sell-off when appropriate. And some of these private investors allegedly make so much profit that they have to change it out into precious metals like gold, etc. and many are more wealthy than Bill Gates $90.1 billion. What is going on secretly, if true, is criminal.
MARKETWATCH – February 13, 2018: According to the article, Wall Street’s ‘fear gauge’ is rigged, said one whistleblower. In a letter submitted to the Securities and Exchange Commission and the Commodity Futures Trading Commission, the source noted that one of the most popular measures of volatility is being manipulated.
The source affirms to regulators that fake quotes for the S&P 500 index SPX, +0.26% are panicking levels of the Cboe Volatility Index VIX, -2.38% which reflects bearish and bullish options bets 30-days in the future on the S&P 500 to gauge implied stock-market volatility.
Source letter to the exchange, excerpt: The flaw allows trading firms with sophisticated algorithms to move the VIX up or down by simply posting quotes on S&P options and without needing to physically engage in any trading or deploying any capital. This market manipulation has led to multiple billions in profits effectively taken away from institutional and retail investors and cashed in by unethical electronic option market makers.
The article noted that the whistleblower’s claims are in agreement with those documented by John Griffin, professor of finance at the University of Texas and Ph.D. candidate Amin Shams in May 2017 in research that says the cost of manipulating less-liquid SPX options would be more than paid for by a successful bet on the direction of the VIX. The paper is consistent with the whistleblower’s conclusion about that manipulators are moving/panicking prices of the SPX options by spoofing at settlement – ghostly entering quotes for trades that are never executed – to “paint the tape” and, therefore, influence the value of expiring VIX derivatives.
The letter advises that “the SEC and CFTC are to promptly investigate the matter before investors suffer additional losses due to this fraud.”
The whistleblower further charges that the average retail investor isn’t aware regarding how exchange-traded products like XIV are rebalanced daily and that a “mismatch” in the nature of short-volatility products means “a larger move in spot-volatility in either direction requires excessive buying or selling pressure whenever short volatility assets are dominant.”
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Stock Market ‘Fear Index’ Faces Probe
WSJ – February 14, 2018: The Wall Street Journal is reporting that the Financial Industry Regulatory Authority is looking into whether bets were placed on S&P 500 options to influence VIX futures of the stock market’s widely watched “fear index” to find out if it was manipulated, according to people with knowledge of the matter. And that if evidence of manipulation is found, it would be a black mark for the VIX, which has soared in popularity over the last decade as a hedging tool for investors.
An example is given on how VIX manipulation could occur: It would involve traders trying to move prices for VIX futures and options could achieve this (i.e. the panic) by betting on the options at a special auction that takes place each month to calculate settlement values.
Manipulation Case Against A Trader
WSJ – February 18, 2018: What is said to be a rare market-manipulation trial begins in a Manhattan federal court on Thursday, described as one of the biggest U.S. futures traders enters an unpredictable showdown with his regulator.
The possibility of a lifetime trading ban, trader Donald Wilson Jr., the 48-year-old founder and chief executive of proprietary trading firm DRW Investments LLC, if he is found to have directed an illegal scheme to manipulate a little-known interest-rate contract.