The dominant gauge of investor fear — the VIX — is about to face new competition.
Lenexa-based Bats Global Markets on Tuesday introduced its own volatility benchmark for U.S. stocks called the Bats-T3 SPY Volatility Index, an attempt to muscle in on CBOE Holdings’ VIX territory.
Dubbed SPYIX (pronounced “Spikes”) by its creators, the index tracks the price of options linked to the world’s biggest exchange-traded fund, the SPDR S&P 500 ETF Trust.
Though they’re calculated in different ways, the indexes are similar enough that the price of the SPYIX should closely resemble the VIX, one of the most closely watched benchmarks in finance.
Creating a successful index could open the door for Bats, which is planning an initial public offering, to create its own options products. The fiercely competitive equity trading business has compelled exchange operators to seek alternative sources of revenue.
The core of the Bats sales pitch is automation. While trading pits where business is done in person are largely extinct, some options used to calculate the VIX are still transacted by human traders at CBOE’s market in Chicago.
The SPYIX is derived from options bought and sold electronically. Bats argues that this means its product would have stayed online on Aug. 24, when CBOE’s index was unavailable for 30 minutes because of enormous market volatility.
“The SPYIX is designed to withstand the most turbulent market conditions,” according to Bats, which developed the new benchmark with T3Index.
On Aug. 24, CBOE said trading in the options from which the VIX is derived was temporarily too disjointed to calculate a value.
“Aug. 24 was such a rare occurrence,” Bill Speth, vice president of research and product development at CBOE, said in an interview Monday. “We have no plans to make major changes in the VIX calculation at this time.”