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SEC fines S&P Dow Jones Indices $9 million over volatility index negligence

SEC fines S&P Dow Jones Indices $9 million over volatility index negligence

United States regulator the Securities Exchange Commission has fined S&P Dow Jones Indices $9 million over negligence in managing one of its indexes that resulted in huge losses due to volatility.

An order by SEC indicates that the negligence affected securities issued by Credit Suisse Group after S&P Dow Jones failed to disclose that its S&P 500 VIX Short Term Futures Index had an auto-hold feature.

Following the indices failure, the result was static for over an hour during the February 5, 2018 incident. At the same time, the underlying CBOE Volatility Index (“VIX”) was rising 115% higher.

SEC fails to disclose lost amount during volatility period

The regulator notes that the static data led to a 96% drop in the value of Credit Suisse’s VelocityShares Daily Inverse VIX Short-Term Exchange-Traded Notes (“XIV Notes”) that was reliant on the S&P DJI index. The SEC has not disclosed the amount lost during the incident.

“When index providers license their indices for the issuance of securities, as S&P DJI did here, they must ensure that the disclosure of critical features of their products, as well as the publication of real-time values, are accurate,” said Daniel Michael, chief of the SEC enforcement division’s complex financial instruments unit.

However, S&P Dow Jones Indices have neither admitted nor denied the allegations.

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