SEC Ends Investigation against S&P Dow Jones Indices after $9M Settlement

The US Securities and Exchange Commission (SEC) has ended an investigation against S&P Dow Jones Indices LLC (S&P DJI) after reaching a settlement for $9 million in a penalty, the regulator announced on Monday. The regulator was investigating the company for publishing old index values for the S&P 500 VIX Short Term Futures Index ER.

Though S&P DJI agreed to the cease and desist order, it neither admitted nor denied the findings of the financial market regulator.

The regulatory order detailed that the S&P 500 VIX Short Term Futures Index ER (Index) published an old index value on February 5, 2018, when CBOE Volatility Index futures contracts spiked 115 percent. The index simply remained static during certain intervals between 4 pm and 5:08 pm that day.

An Undisclosed Feature

Additionally, the SEC specified that the error was due to an undisclosed ‘Auto Hold’ feature, which was triggered if the index value breached a predefined threshold. The undisclosed practice had affected the securities issuers licensing the index.

XIV, an inverse exchange-traded note, uses the S&P index values reported indicative of real-time values that are higher than what they should be because of the undisclosed ‘Auto Hold’ feature, according to the SEC’s allegations.

“Index providers like S&P DJI play a crucial role in the financial markets,” said Daniel Michael, Chief of Complex Financial Instruments Unit at SEC’s Enforcement Division. 

“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.”

S&P DJI highlighted that it cooperated with the SEC in the investigation and is committed to making its benchmarking process more transparent.

“S&P DJI has reviewed its methodologies and its related policies and procedures as part of its index governance processes. The company continues to enhance and strengthen its control framework and operations to meet the needs of its clients and the evolving markets it serves,” the company stated.

(Photo: US SEC, flickr)

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