The US Securities and Exchange Commission (SEC) has dropped an investigation against S&P Dow Jones Indices LLC (S&P DJI). According to the SEC, the company was allegedly offering old index values.
However, the SEC has now dropped the charge against S&P after a $9 million penalty settlement. The penalty was issued after the company was found culpable of publishing old index values for S&P 500 VIX Short Term Futures Index ER.
According to the SEC, the S&P 500 VIX Short Term Futures Index ER published a phased out index value on February 5, 2018. Around the same date, the CBOE Volatility Index futures contracts increased by 115%. The index also remained at the same level during specific periods from 4 pm to 5:08 pm on the same day.
The S&P DJI agreed to the cease and deceased order issued by the regulator, but it did not confirm whether the financial regulator’s findings were correct.
Failure to Disclose
The SEC specified that the error on the S&P Index was caused by a hidden ‘Auto Hold feature’ caused by the index value going beyond the predefined scope. Because of the lack of disclosure, the licensing of the index had been affected.
According to the SEC accusations against the company, the undisclosed feature made the XIV report higher real-time values than what they should be trading for. XIV is an inverse exchange-traded note that makes use of the S&P index values.
Daniel Michael, the chief of Complex Financial Instruments Unit at the SEC, stated, “Index providers like S&P DJI play a crucial role in the financial markets.”
“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.”
According to S&P DJI, the firm has cooperated fully with the regulator during the investigation. It has also committed to ensuring that its processes are more clear and transparent. This would help maintain compliance and ensure all of its product offerings are in line with its licensing.
“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 added.