(Bloomberg) — Former Treasury Secretary Lawrence Summers urged the Securities and Exchange Commission and relevant exchanges to look into the historic surge in the most-watched gauge of US financial volatility on Monday.
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“My understanding is that because there are some illiquid instruments that go into the calculation of the VIX, the VIX had a somewhat artificial move on Monday,” Summers said on Bloomberg Television’s Wall Street Week with David Westin on Friday. “Since that is so widely watched an indicator, issues of liquidity, issues around how it settles, I think should be studied by the relevant parties in the industry and the regulator — the SEC.”
The VIX, or Cboe Volatility Index, is sometimes referred to as the “fear gauge” and is a metric of expected stress in US equities. During the sharp selloff in stocks Monday, the VIX recorded an unprecedented surge that took it above 65 — a level associated with outright investor panic.
Experts in gauging volatility have since told Bloomberg that the move could have been caused by several technical factors, including the apparent lack of liquidity, some short covering in misfired volatility bets, or simply how the gauge is calculated.
As examination has unfolded, it now looks like “you were learning more about issues around liquidity in the options markets than you were about some profound reassessment of the American economy,” said Summers, a Harvard University professor and paid contributor to Bloomberg TV.
“If one looks at the VIX futures, which are a somewhat different instrument, the movements were much, much less dramatic,” Summers said “The SEC and the relevant exchanges may want to pay a bit of attention.”
The CBOE didn’t respond earlier Friday to a request for comment on potential issues with the VIX index. The SEC declined to comment on the matter, in an emailed response. The Commodity Futures Trading Commission also declined to comment.
–With assistance from Denitsa Tsekova and Lu Wang.
(Updates with SEC declining to comment.)
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