Industry Updates

SEC fines S&P Dow Jones Indices $9m over volatility index failures

The S&P 500 VIX Short Term Futures index included an "auto hold" feature that was not clear to Credit Suisse or investors

Tom Eckett

Securities and Exchange Commission

The Securities and Exchange Commission (SEC) has charged index provider S&P Dow Jones Indices (SPDJI) for failing to disclose an important feature in its volatility index that caused major losses for Credit Suisse investors.

The US regulator stated SPDJI should have been clearer to investors and the issuer that the S&P 500 VIX Short Term Futures index included an “auto hold” feature – a common index feature – which kicked in during extreme market volatility on 5 February 2018 when the CBOE Volatility was up 115%.

The auto hold feature meant the index was static between 4pm and 5:08pm and this contributed to a 96% plummet in Credit Suisse’s VolictyShares Daily Inverse VIX Short-Term Exchange Traded Notes (XIV) which was inversely tracking the index.

According to Set Capital and other investors, this dramatic fall led to losses of $1.8bn in a single day’s trading.

SEC commissioner Hester Peirce said in a statement: “During a very critical moment on a very critical day for CSAG and XIV investors, the public information about the intraday value of the index on which that ETN was based was stagnant.”

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As a result, the SEC and SPDJI have reached a settlement with the company agreeing to pay a $9m fine.

Despite this, the index provider did not admit to any wrongdoing adding it “neither admits nor denies the SEC’s allegations”.

“SPDJI takes these matters seriously and is committed to transparency and the integrity of its benchmark determination process,” the firm said in a statement.

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