Index Giant S&P Faces Potential SEC Lawsuit Over Volatility Gauges -- Update
By Alexander Osipovich
The Securities and Exchange Commission plans to bring an
enforcement action against S&P Dow Jones Indices, one of the
world's biggest index providers for exchange-traded funds, for
failing to provide sufficient disclosures on certain
volatility-linked indexes in 2018.
The index provider -- a joint venture of financial-data firm
S&P Global Inc. and exchange operator CME Group Inc. --
received a Wells notice from SEC staff during the second quarter of
2020, New York-based S&P Global said in a quarterly filing
A Wells notice is a letter saying the SEC plans to bring a civil
enforcement action against a company or individual and gives the
recipients a chance to argue why the action shouldn't be taken.
The proposed SEC enforcement action "would allege violations of
federal securities laws with respect to the absence of disclosure
of a quality assurance mechanism and the impact of that mechanism
on certain volatility related index values published on one
business day in 2018," the filing from S&P Global said. The
index unit is cooperating with the SEC, the filing said.
It couldn't be learned which trading day the SEC staff were
focused on. The Wall Street Journal has previously reported that
SEC officials have examined the events of Feb. 5, 2018, a hectic
day of trading when the Dow Jones Industrial Average slid 4.6% and
the Cboe Volatility Index jumped 116%, blowing up a number of
popular volatility-linked trades in an event that some dubbed
An S&P spokesman said, "S&P Dow Jones Indices has
established rigorous processes to maintain the transparency and
integrity of our benchmark determination process, and protect the
independent governance and quality of our indices."
Representatives of CME and the SEC declined to comment.
Asked about the Wells notice during a Wednesday earnings call,
CME Group financial chief John Pietrowicz said the question "should
really be directed to S&P Global." S&P owns a 73% majority
stake in the joint venture, while CME owns the remaining 27%.
Dow Jones, the publisher of the Journal, was previously a
part-owner of S&P Dow Jones Indices but sold its last remaining
stake in the unit to CME in 2013.
Any decision by the SEC to formally accuse S&P of
wrongdoing, either through a civil lawsuit or an order of
settlement, would have to be approved by the SEC's
S&P Dow Jones Indices manages thousands of indexes,
including the S&P 500 and the Dow Jones Industrial Average. It
makes money by licensing its indexes to fund managers, exchanges
and other financial firms, allowing them to offer ETFs and other
products based on S&P's indexes.
The indexing business has grown at a fast clip in recent years
due to the surging popularity of passive investing strategies, in
which investors buy ETFs and mutual funds that track a particular
benchmark, rather than putting their money with managers who pick
stocks and try to beat the market.
Write to Alexander Osipovich at
(END) Dow Jones Newswires
July 29, 2020 12:48 ET (16:48 GMT)
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