S&P Dow Jones Indices to pay $9 million to SEC over its role in the collapse of a volatility-trading vehicle

• S&P Dow Jones Indices will pay the SEC a $9 million fine as part of a settlement agreement.
• The SEC claimed negligence on behalf of S&P DJI for how it managed an index that underpinned a Credit Suisse volatility-trading product.
• The company, a division of the S&P Global, said it neither admits nor denies the SEC’s allegations.
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S&P Dow Jones Indices will pay a $9 million fine to the US Securities and Exchange Commission as part of a settlement agreement.

The SEC claimed negligence on the behalf of S&P DJI for how it managed one of its indexes that underpinned a Credit Suisse volatility-trading product during a time of severe price swings.

According to the SEC, the S&P DJI should have disclosed that its S&P 500 VIX Short Term Futures Index ER had an “auto hold” feature that caused its value to remain static for more than an hour on Feb. 5, 2018. Meanwhile, the VIX was spiked as much as 115% between 4:00 p.m. and 5:08 p.m.

The static data, according to the SEC, contributed to a 96% slide in the value of Credit Suisse’s VelocityShares Daily Inverse VIX Short-Term ETN – also known as XIV – which was dependent on the S&P DJI index. That collapse cost investors an estimated $1.8 billion.

S&P DJI in a statement agreed to pay the penalty and to cease and desist from committing any future violations. But it neither admitted nor denied the SEC’s allegations.

“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,” Daniel Michael, chief of the SEC enforcement division’s complex financial instruments unit, said in a statement.

The downfall of XIV showed the risks of shorting volatility, which had become a wildly popular – and profitable – trade at the time as markets sat placid for months. On Feb. 5, 2018, however, the VIX saw it’s fourth-biggest spike on record, squeezing out many of those short-sellers.