business

China's VIX Goes Dark as Government Clamps Down on Options

Updated on
  • State-run index compiler stopped updating the gauge Thursday
  • Move is designed to curb options trading, people say

What Expect as China Markets Reopen After Break

China stopped updating its homegrown version of the VIX Index, taking another step to discourage speculation in equity-linked options after authorities tightened trading restrictions last week.

State-run China Securities Index Co. didn’t publish a value for the SSE 50 ETF Volatility Index on its website Thursday. An employee who answered CSI’s inquiry line said the company stopped updating the measure to work on an upgrade. The move was designed to curb activity in the options market, said people familiar with the matter, who asked not to be identified discussing private information. It’s unclear when the index will resume.

Like its U.S. counterpart, the SSE 50 volatility index is a widely-followed options indicator that’s viewed by some observers as a gauge of investor anxiety. The index nearly doubled in the span of a few days earlier this month, tracking a similar move in the VIX, as equities tumbled in Shanghai and around the world.

The decision to stop publishing the index forms part of a broad effort by Chinese officials to contain market turbulence. Other measures this month have included volume limits on active options traders and informal directives encouraging some major stockholders to purchase more shares. Chinese leaders have in the past faced criticism for meddling too much in markets, particularly during the nation’s 2015 equity crash.

Officials tightened the curbs on options traders from Feb. 12, people familiar with the matter said last week, in part because they were alarmed by a gain of as much as 2,250 percent in the price of one bearish contract on the SSE 50 ETF (also known as the China 50 ETF). The fund is China’s only equity-linked product with options.

Unlike the U.S., China has avoided approving derivatives and funds tied to its volatility gauge. Several products linked to the VIX were wiped out this month as the index surged.

Read more about VIX-related turmoil here.

Volume in the SSE 50 ETF options was about 40 percent lower than the 20-day average on Thursday, according to data compiled by Bloomberg. While the trading curbs may have played a role in the decline, activity across Chinese markets was subdued as investors trickled back to work after the week-long Lunar New Year holiday.

The China Securities Regulatory Commission didn’t immediately respond to a faxed request for comment.

— With assistance by Steven Yang, and Amy Li

(Updates to add reason for CSI’s move in second paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE