Morgan Stanley, Barclays Capital Inc. and DRW Securities LLC won dismissal of a lawsuit accusing them and others of manipulating the VIX index in 2018, causing hundreds of millions of dollars in losses to investment funds that bought options contracts tied to the widely watched benchmark.
(Bloomberg) — Morgan Stanley, Barclays Capital Inc. and DRW Securities LLC won dismissal of a lawsuit accusing them and others of manipulating the VIX index in 2018, causing hundreds of millions of dollars in losses to investment funds that bought options contracts tied to the widely watched benchmark.
US District Judge Manish S. Shah in Chicago ruled Thursday that plaintiff LJM Partners Ltd. hadn’t adequately alleged that it was injured. The judge said claims by the second plaintiff, Two Roads Shared Trust, were barred by the statute of limitations.
The suit accused the defendants of flashing tens of thousands of quotes for “out-of-the-money” SPX options that were quickly canceled, influencing calculations of the volatility index by Cboe Global Markets Inc., the exchange that sets it. The VIX on Feb. 5, 2018, had its largest one-day surge at the time, burning many investors who’d bet it would stay low.
Two Roads Shared Trust claimed its Preservation Fund lost $340 million that day, and then another $180 million when it was forced to close out its options positions at “artificial and inflated levels.”
In joint court filings, the banks and trading firms called the allegations by Two Roads and LJM “contrived” and “fatally flawed.”
Morgan Stanley, in a separate filing, said it was “implausible” that the bank, acting as a market maker, would manipulate the VIX to benefit an “outright proprietary” long position, and that its revenue on VIX-linked instruments was “from facilitating customer orders during a period of volatility.”
The case is LJM Partners v. Barclays, 20-cv-831, US District Court, Northern District of Illinois (Chicago).
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