By Alexander Osipovich 

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (July 30, 2020).

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 Tuesday.

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 "volmageddon."

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 commissioners.

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 30, 2020 02:47 ET (06:47 GMT)

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