April 19, 2018 / 2:23 PM / 7 months ago

Manipulation of Europe's stocks volatility gauge 'very unlikely' - French market watchdog

LONDON (Reuters) - Any manipulation of Europe’s main gauge of stocks volatility would be “very unlikely”, France’s financial markets regulator said in a research note on Thursday, following allegations that the equivalent U.S. “fear gauge” was being manipulated.

Europe’s VSTOXX .V2TX, the region’s equivalent to the U.S. CBOE S&P 500 volatility index VIX .VIX, would probably be protected from any possible rigging due to the different method used to settle prices for the VSTOXX futures, the Autorité des Marchés Financiers (AMF) said.

Volatility indices spiked in early February, causing the sudden collapse of several “short VIX” exchange-traded products which offered investors inverse exposure to Wall Street’s most widely followed gauge of future stock market volatility.

Subsequently an anonymous whistleblower claimed that the price of VIX futures was being manipulated.

According to the AMF, the method used to settle prices for VSTOXX futures makes it much less vulnerable to manipulation.

“As the index is calculated every 15 seconds, 61 points are used in calculating the settlement price of the future (as opposed to a single point for the VIX). Given the liquidity of Eurostoxx 50 options at this time of the day, it would thus appear much more difficult and costly to manipulate VSTOXX futures,” the report said.

The AMF also ruled out the possibility of manipulation of France’s volatility index, VCAC .VCAC.

“Since the VCAC is not an underlying of listed derivatives, a manipulation scheme on the VCAC index similar to the alleged VIX manipulation may thus be ruled out,” the watchdog said, adding that no products reference the VCAC index.

Reporting by Julien Ponthus; Editing by Helen Reid and Catherine Evans

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