SEC Fines Bloomberg Finance $5M Over 'Misleading' Securities Pricing Product

The Securities and Exchange Commission hit Bloomberg Finance with a $5 million fine on Monday for allegedly misleading clients who used the firm’s securities pricing product.

Without admitting or denying the SEC’s allegations, Bloomberg Finance consented to the regulator’s cease-and-desist order and fine as part of a settlement, the SEC said in a court filing on Monday. The company promised to stop committing or causing any violations and any future violations of Section 17(a)(2) of the Securities Act of 1933.

Noting that pricing services are “widely relied upon for determining the value of thinly traded or more complex assets,” the SEC said in its order that it’s “critically important for pricing services to provide accurate information to their customers about their valuation methodologies.”

However, the Bloomberg subsidiary made a “material omission to customers about its independent pricing service, BVAL,” the SEC alleged.

The BVAL service offers prices each day for more than 2.5 million securities across all asset classes, including thinly traded and hard-to-price fixed income securities, according to the SEC.

“Since at least 2016, Bloomberg has disclosed to customers that its independent valuations of fixed income securities are derived by using proprietary algorithmic methodologies, and Bloomberg has described in detail the methodologies used to derive BVAL prices,” according to the SEC.

However, from at least 2016 through October 2022, “Bloomberg made disclosures to its customers that did not explicitly include that valuations for certain thinly traded fixed income securities could, in certain circumstances, be largely driven by a single data input, such as a broker quote,” according to the SEC.

“The omission that valuations could be largely driven by a single data input made the statements to customers regarding valuation methodologies materially misleading,” the SEC said.

Asked for comment about the SEC’s order on Monday, a Bloomberg spokeswoman pointed to several statements by the regulator in the order:

1. That it was just a “very small fraction of total reported valuations” involved.

2. There was “no evidence that BVAL’s prices were erroneous or not reflective of the market during the relevant period.”

3. “BVAL provides customers with the BVAL score, which is designed to gauge the amount and consistency of market data used in BVAL’s models with respect to a particular BVAL price.”

4. “These circumstances were generally limited to the pricing of certain illiquid, thinly traded securities for which little observable market data exists, and which would be assigned a lower corresponding BVAL score in the BVAL data provided to customers.”

(Image: Diego M. Radzinschi/ALM)