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April 27 (Reuters) – A trader has filed an antitrust complaint accusing seven market makers, including Citigroup Inc and Citadel Securities LLC, of conspiring to manipulate Wall Street’s main indicator of future stock market volatility, the VIX, at the expense of investors.
The lawsuit filed on Friday also accused Cboe Exchange Inc, which administers the VIX, of adopting a “laisser faire” approach that allowed manipulation to thrive, out of “greed” for higher transaction fees and revenue. .
William Siegel, a VIX futures and options trader, filed his proposed class action lawsuit in Chicago on behalf of VIX derivatives investors since January 1, 2008.
Cboe and Citadel did not immediately respond to requests for comment. Citigroup declined to comment.
The VIX is priced from S&P 500 options, and some investors have complained of alleged rigging to make positions more profitable when settled.
In February, an anonymous whistleblower sent a letter to the US Securities and Exchange Commission and the Commodity Futures Trading Commission alleging manipulation of the VIX.
Cboe called the letter “full of misstatements, misconceptions and factual errors,” but Siegel said others like former SEC Chairman Harvey Pitt and former CFTC Commissioner Bart Chilton suggested that rigging was possible.
The lawsuit said the manipulation caused “billions of dollars in losses” for investors in VIX instruments, and that Cboe took “no effective action” to stop it.
After trading between 10 and 20 for several months, the VIX climbed above 50 on Feb. 6 amid falling US stock prices.
Traders betting on a stable or falling VIX suffered losses, and some investments indirectly linked to the gauge lost more than 80% of their value in one day.
On Monday, Cboe told clients it was evaluating possible steps to improve the VIX settlement process.
Siegel is represented by the Hausfeld law firm, whose specialties include capital market rigging suits.
The case is Siegel v Cboe Exchange Inc et al, US District Court, Northern District of Illinois, No. 18-03021. (Reporting by Jonathan Stempel; Additional reporting by Saqib Iqbal Ahmed; Editing by James Dalgleish)
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