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Earlier this week, the Securities and Exchange Commission resolved allegations that UBS Financial Services had false policies and procedures that resulted in clients holding exchange-traded fund products linked to short-term volatility longer than they should have. Will pay $ 8.1 million to do so.
At least between January 2016 and January 2018, financial advisors to UBS’s voluntary portfolio management program purchased iPath S & P 500 VIX Short Term Futures ETNs (VXX) for their clients and held them longer than intended. did. The SEC order said. Although ETNs are designed to hold for several days, a subsidiary of the Swiss multinational investment bank based in New Jersey had hundreds of accounts holding products for over a year.
Accounts that have held VXX for over a year have lost more than 75% of VXX’s holding value. SEC found..
UBS did not acknowledge or deny the findings, the SEC’s order said.
Listed on the NYSE Arca, VXX is a volatility-linked exchange-traded fund that tracks the total return of the S & P 500 VIX Short-Term Futures Index. The benchmark provides exposure to maturity futures contracts specified by the volatility index VIX.
When VXX was first proposed to UBS’s ETP Review Committee in 2009, a representative of the issuer stated that, according to the SEC’s order, “it is inappropriate to hold VXX for long periods of time.” It was. The UBS Review Board initially allowed ETP to be sold on UBS’s intermediary platform. However, the Commission soon restricted the sale of VXX to securities firm customers, and in 2011 completely banned UBS brokerage representatives from soliciting merchandise.
By 2016, the Commission allowed the product to be unilaterally sold only to customers with a net worth of over $ 1 million and a positive risk profile. In 2017, the net worth threshold increased to $ 10 million.
Several times in 2015 and 2016, UBS’s executive committee warned internal financial advisors about the long-term risks of its products.
However, according to the SEC, the discretionary account advisory program did not impose equivalent restrictions on fund advisors.
With over 5 years of experience, such advisors can invest their clients’ assets in VXX. In addition, UBS did not limit product use to specific strategies or to customer risk profiles, net worth, or revenue.
“UBS implemented retention monitoring and restrictions on another category of complex ETPs, reverse ETFs, but UBS did not implement volatility-linked ETPs such as VXX,” the order said. I am.
Some fund advisors said they see VXX as a hedging instrument and do not consider investment duration. “As a result, these are [advisers] We couldn’t make a reasonable decision as to whether VXX was a good investment for our clients, “the order was found.
James Tierney, a law professor at the University of Nebraska Law School and a former senior adviser to the SEC’s corporate law firm, said the SEC’s orders were likely motivated by concerns about investor protection.
“Some UBS advisors didn’t really understand the risks associated with these volatility-linked products,” Tierney added.
UBS advisers said the order was forbidden to invest more than 3% of the assets in the account in commodities. However, the order states that UBS has failed to monitor and enforce this rule. Between January 2016 and August 2017, 38 advisors maintained an over-concentration of VXX with 637 accounts.
“The way this happened was pretty terrible,” said Amy Lynch, founder and president of FrontLine Compliance. “They didn’t even follow their own policies and procedures to monitor concentration risk.”
In October 2017, the UBS Executive Committee realized that UBS advisors were abusing VXX. They banned further purchases and instructed current holders to close their positions by January 2018.
Tierney said UBS’s decision to take corrective action before being contacted by the SEC helped their position in reconciliation negotiations. “Companies do not get the same kind of credit for corrective efforts taken only after someone notices,” he added.
The SEC has ordered UBS to pay civil penalties of $ 96,344 for injustice, $ 15,930 for prejudiced interest, and $ 8 million.
“Advisory firms need to protect their clients from improper investment in complex financial instruments,” said Daniel Michael, Head of Complex Financial Instruments, SEC Enforcement. “We will continue to scrutinize corporate policies and procedures related to these dangerous products and take action if they are inadequate.”
“UBS is one of the voluntary trading programs from 2016 to 2018, and we are pleased to be able to resolve this issue related to the company’s policies and procedures for one product,” said UBS. .. “As the SEC acknowledged, UBS actively reviewed the product and removed it from the program before being contacted by the SEC.”
This settlement is the sixth settlement resulting from the SEC’s ETP initiative. Last November, SEC Solved in 5 groups Volatility-linked ETP was held longer than designed.
May, SEC Calm down The S & P Dow Jones Index shows that it disseminates old data on the S & P 500VIX Short Term Futures Index ER during periods of market volatility.
* Ignites is a news service issued by FT specialists for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trial versions and subscriptions are available at the following URL: ignites.com..
US regulator fines UBS $8m over volatility ETP Source link US regulator fines UBS $8m over volatility ETP