S&P Dow Jones Indices has agreed to pay $9 million to settle charges that it published stale index values during an unprecedented market spike in February, causing huge losses on a futures contract issued by Credit Suisse.
According to the U.S. Securities and Exchange Commission, the S&P 500 VIX Short Term Futures Index ER failed to accurately reflect the volatility on Feb. 5 because it remained static during certain intervals between 4:00 p.m. and 5:08 p.m. that day after an undisclosed “Auto Hold” feature was triggered.
S&P DJI had the ability to manually release Auto Holds but was short of index management staff on Feb. 5, resulting in “the publication of static ticks that were not based on the real-time prices of certain VIX futures contracts,” the SEC said in an administrative order.
The price of one Credit Suisse contract closed at about $99 at 4:00 p.m. and then plunged to a low of about $10 during after-hours trading. Investors in the contract have estimated that the plunge caused $1.8 billion of losses.
“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 news release.
On Feb. 5, the DJIA declined more than 1,175 points — its then largest ever intraday drop — and the S&P 500 fell over 4%.
The VIX, which is intended to measure the market’s expectation of future volatility based on S&P 500 options, experienced its largest daily increase on record on Feb. 5. But during that day, the SEC said, only one S&P DJI index manager was monitoring the VIX, “which was one of thousands of indices he was tasked to monitor that day.”
After the equities markets closed, prices of the VIX futures contracts used to calculate the index spiked, triggering a series of Auto Holds, but according to the SEC, the index manager “did not release them manually or investigate their cause.”