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Layman question: Was there any arbitrage available to financial firms during the times the VIX was stale as a result of this “feature”?

Kranar 5y ago
No because this feature is nothing more a feed that distributes a numeric value, it's not a financial instrument that you can trade. There are products that track the VIX that can be traded, but the price of those products deviated from the value published by the S&P. Part of the complaint is that some people relied too much on this feed and got crushed thinking there was some arbitrage opportunity when there wasn't. Any remotely competent financial firm that trades off of the VIX calculates their own value for it.
- elliekelly 5y ago
  In this case DJI specifically licensed the VIX data to Credit Suisse for the purpose of offering and listing a security - XIV. You’re right that there were (and are) other securities that track VIX or use VIX as a component calculation but what’s interesting here is the SEC’s focus on XIV specifically. It seems the language of the data license agreement (quoted and summarized in paragraph 19 of the SEC’s Order[1]) played a role in the SEC’s decision to go after S&P Dow Jones for the bad data. [1]https://www.sec.gov/litigation/admin/2021/33-10943.pdf https://www.sec.gov/litigation/admin/2021/33-10943.pdf
  - mortehu 5y ago
    Were the other products ETNs? For an ETF like SVXY, you are buying ownership of the underlying derivatives contracts. For an ETN like XIV, there is no underlying instrument, and you are buying exactly* the index value (which is why I bought XIV after the close that night, and it did not turn out well). *) Subject to counterparty risk
- ericbarrett 5y ago
  Hmm, thank you. But didn’t that then create such opportunities since there was a knowledge differential between firms in the know and others (perhaps day traders)?

Kranar 5y ago

No because this feature is nothing more a feed that distributes a numeric value, it's not a financial instrument that you can trade. There are products that track the VIX that can be traded, but the price of those products deviated from the value published by the S&P. Part of the complaint is that some people relied too much on this feed and got crushed thinking there was some arbitrage opportunity when there wasn't. Any remotely competent financial firm that trades off of the VIX calculates their own value for it.

elliekelly 5y ago
In this case DJI specifically licensed the VIX data to Credit Suisse for the purpose of offering and listing a security - XIV. You’re right that there were (and are) other securities that track VIX or use VIX as a component calculation but what’s interesting here is the SEC’s focus on XIV specifically. It seems the language of the data license agreement (quoted and summarized in paragraph 19 of the SEC’s Order[1]) played a role in the SEC’s decision to go after S&P Dow Jones for the bad data. [1]https://www.sec.gov/litigation/admin/2021/33-10943.pdf https://www.sec.gov/litigation/admin/2021/33-10943.pdf
- mortehu 5y ago
  Were the other products ETNs? For an ETF like SVXY, you are buying ownership of the underlying derivatives contracts. For an ETN like XIV, there is no underlying instrument, and you are buying exactly* the index value (which is why I bought XIV after the close that night, and it did not turn out well). *) Subject to counterparty risk
ericbarrett 5y ago
Hmm, thank you. But didn’t that then create such opportunities since there was a knowledge differential between firms in the know and others (perhaps day traders)?