torture device

No More SPIKEs Could Hurt Traders

By:Thomas Westwater

SPIKES Index, the only VIX competitor, is set to stop trading. Here's what it means for volatility traders.

  • CBOE wins federal suit against Miami International Holdings Inc.
  • Federal judge rules against an SEC order that gave SPIKES preferential treatment as futures, and not as a security futures, product.
  • Removal of SPIKES Index may hurt traders by removing competition in the market.

Just three and a half years after launching, the SPIKES Index—a VIX-style copycat—will stop trading, leaving the Chicago Board of Options Exchange (CBOE) as the sole provider of a market “fear gauge.”

Miami International Holdings Inc., otherwise known as MIAX, unveiled the SPIKE Index in February 2019, offering the only product to counter the CBOE's stranglehold on a volatility product that tracks against the S&P 500 index.

MIAX partnered with T3, a research-driven financial indexing firm specializing in option and volatility benchmarking. They marketed the volatility product as a cost-efficient alternative to the VIX. Like the VIX, the SPIKE Volatility Index measures the expected 30-day volatility in the SPDR® S&P 500® ETF (SPY). The VIX is calculated from the implied volatility of S&P 500 index options.

What killed the SPIKE Index?

While the SPIKE Index was widely celebrated upon its release, it failed to gain popularity over the years. Last month, a federal appeals judge agreed with the CBOE and ruled against a 2020 order by the Securities and Exchange Commission (SEC) that treated the SPIKE Index as futures, and not security futures. That meant greater regulatory scrutiny and less favorable tax treatment for SPIKE.

“The SEC did not adequately explain why SPIKE futures must be regulated as futures to promote competition with VIX futures." the judge stated. "While we thus vacate the commission’s order, we will withhold issuance of our mandate for three calendar months to allow market participants sufficient time to wind down existing SPIKE futures transactions with offsetting transactions.”

What does this mean for traders?

The deadline for the SEC to appeal is Sept. 11. If the current order goes unchallenged, SPIKE will stop trading. That would once again leave the VIX as the only product of its kind. Some argue that this will hurt investors by taking away competition in the market.

Competition usually benefits consumers, who, in this case, are traders. The total daily volume of SPIKE futures is, on most days, just a fraction of what the VIX trades. And the SEC hasn’t commented on the decision yet. For now, traders can assume that the SPIKE Index is on its deathbed. Given that the SPIKE Index never really took off, especially with retail traders, the average trader will likely be unimpacted.


Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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