VIX Manipulation Probes Sow Angst Around Wall Street Fear Gauge

The world got a stomach-churning lesson in the risks of trading volatility after the VIX swung wildly in February.

Now, traders are experiencing another gut check as market regulators look into allegations that the index is being rigged.

News broke May 3 that the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission opened probes into the VIX, one of Wall Street’s most widely used benchmarks. One area of investigation is the monthly auction that determines the price of futures contracts tied to the VIX, people familiar with the matter said.

“If they find something that is untoward, that’s ...