February 1, 2019 / 10:36 PM / 22 days ago

CBOE fines firm for trades tied to Wall Street 'fear gauge' VIX

Feb 1 (Reuters) - CBOE Global Markets Inc said it fined a Chicago-based trading firm $1.28 million for submitting improper trades in an auction linked to the VIX index, a gauge of expected future stock market volatility and its best-known product.

According to a letter of consent made public on Friday, Akuna Securities LLC improperly distorted final settlement values for VIX derivatives on three days between November 2016 and November 2017.

The CBOE said Akuna submitted "strategy orders" composed of Standard & Poor's 500 options trades, hoping to boost the chance that derivative bets that were part of its strategy orders would be included in final VIX settlement values.

Akuna also agreed to give up $6,726 it made on its trades. It did not admit or deny wrongdoing in agreeing to settle. The CBOE said in a statement the fine did not concern manipulation.

A spokesman for Akuna declined to comment.

Sometimes known as Wall Street's "fear gauge," the VIX is a measure of expected 30-day volatility for U.S. stocks based on S&P 500 options. VIX derivatives, such as futures and options, expire on the third or fourth Wednesday of every month.

The VIX has long been dogged by suspicion among traders that monthly auctions can be manipulated.

That suspicion gained credence in 2017 when researchers at the University of Texas noted significant increases in trading volumes of S&P 500 index options at the time of VIX settlements. (Reporting by Jonathan Stempel in New York Editing by James Dalgleish)

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