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Judge dismisses Wall Street 'fear gauge' lawsuit against Cboe

By Jonathan Stempel
FILE PHOTO: Chicago Board Options Exchange Global Markets headquarters building in Chicago

By Jonathan Stempel

(Reuters) - A federal judge on Monday dismissed an antitrust lawsuit by investors who accused the parent of the Chicago Board Options Exchange of letting anonymous traders rig the "fear gauge," Wall Street's main gauge of future stock market volatility, at their expense.

U.S. District Judge Manish Shah in Chicago found no proof that Cboe Global Markets Inc intended to defraud investors by letting the "John Doe" traders manipulate options and futures tied to the fear gauge, known as the VIX, to generate higher transaction fees.

In a 48-page decision, Shah said he found no plausible allegations that Cboe knew who the John Does were or worked with them to rig the VIX, as Cboe Volatility Index is known, or that Cboe's failure to enforce its rules caused losses for investors not involved in any manipulation.

"The more compelling inference here is that Cboe pursued a profit motive by making the VIX replicable," helping liquidity providers offset risk, "and any manipulation that occurred was unintentional or negligent (from Cboe's perspective)," Shah wrote.

Lawyers for the investors did not immediately respond to requests for comment. Cboe's lawyers did not immediately respond to similar requests.

Shah dismissed a version of the proposed class action last May, but gave the investors another chance to pursue federal securities and commodities law claims.

Monday's dismissal was with prejudice, meaning the complaint cannot be filed again.

The VIX measures expected 30-day volatility for U.S. stocks based on Standard & Poor's 500 options, and often rises when stock prices fall.

The VIX gained notoriety in February 2018 when prices of two products tied to it sank more than 80%, and an anonymous whistleblower alerted U.S. financial regulators to alleged manipulation.

The case is In re Chicago Board Options Exchange Volatility Index Manipulation Antitrust Litigation, U.S. District Court, Northern District of Illinois, No. 18-04171.


(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)