S&P Dow Jones Indices will pay $9 million to settle charges brought by the Securities and Exchange Commission that it was negligent overseeing a quality control feature of a volatility-related index that failed during a day of volatility in futures contract trading.
In the settlement announced Monday, S&P Dow Jones Indices neither admitted nor denied the SEC's allegation that the index provider disseminated "stale index values during a period of unprecedented volatility" in February 2018.
According to the SEC order, the S&P 500 VIX Short Term Futures Index ER was intended to calculate values based on real-time prices of certain CBOE Volatility index futures contracts.
On Feb. 5, 2018, the VIX spiked 115%, but the index remained static at one point in the afternoon because of an undisclosed "auto hold" feature that reports a previous value if an index value breaches certain thresholds, the SEC found. When S&P DJI did not release the hold, stale index values were published instead of ones based on the real-time prices of certain VIX futures contracts.
Since the index was the main point used to calculate the XIV ETN's indicative values, those were also static and higher than they otherwise would have been. Freezing the values could also have thrown off a key metric that lets issuers accelerate outstanding notes.
"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, in a statement.