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SEC Delays $9M Payout for Investors Harmed by VIX Futures Mispricing

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What You Need to Know

  • Its enforcement division needs more time to to locate and verify contact information for investors.
  • The mispricing was due to an undisclosed auto-hold feature in the S&P 500 VIX Short Term Futures Index.
  • The index was licensed to the VelocityShares Daily Inverse VIX Short Term ETN (XIV).

Investors harmed by the mispricing of VIX futures contracts by S&P Dow Jones Indices (S&P DJI) will have to wait until next year to collect their portion of the $9 million fine collected from the firm by the Securities and Exchange Commission.

The SEC created a Fair Fund so the penalty could be distributed to investors that were harmed by the mispricing, but its Division of Enforcement needs more time to to locate and verify contact information for investors, compile investor records, complete the fund administrator solicitation and appointment process, and then develop its plan, according to the agency.

The commission gave the division until March 31, 2022, to submit a proposed plan of distribution of the $9 million, which S&P DJI has agreed to pay without admitting or denying guilt.

In the meantime, Fair Fund monies have been deposited in an interest-bearing account at the U.S. Department of the Treasury’s Bureau of the Fiscal Service. Any interest will accrue to the benefit of investors who receive the distribution, but at current rates that won’t be much.

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The SEC announced the fine in mid-May after discovering that the S&P DJI failed to disclose a “auto hold” feature in its S&P 500 VIX Short Term Futures Index, which it had licensed to the VelocityShares Daily Inverse VIX Short Term ETN (XIV). The auto hold feature was triggered when the index breached a certain threshold, causing S&P DJI, during a period of unprecedented volatility, to report an earlier index value that was incorrect.

The SEC found that on Feb. 5, 2018, the S&P 500 VIX Short Term Futures Index ER published by S&P DJI experienced a spike of 115%, but the index recorded no change between 4 p.m. and 5:08 p.m. that day. It charged S&P DJI with violating Section 17(a)(3) of the Securities Act and S&P DJI agreed to a cease-and-desist order and to pay a $9 million penalty.

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