UBS pays $8 million to settle SEC complaint for compliance failures in volatility-linked ETP

Rick Steves

The issuer of the product had warned the bank that it was not appropriate to hold the product for extended periods

UBS has settled charges with the Securities and Exchange Commission related to investments in a complex exchange-traded product. This is the sixth matter arising from the Enforcement Division’s ETP Initiative.

The SEC found compliance failures from the bank relating to sales of a volatility-linked exchange-traded product (ETP), designed to track short-term volatility expectations in the market as measured against derivatives of a volatility index.

The issuer of the product had warned the bank that it was not appropriate to hold the product for extended periods. The product’s documents were explicit about the inherent risk, of being more likely to decline in value when held over a longer period.

While UBS prohibited brokerage representatives from soliciting sales of the product and placed other restrictions on sales of the product to brokerage customers, the bank allowed certain financial advisers to use the product in discretionary managed client accounts.

In addition, UBS adopted a concentration limit on volatility-linked ETPs, but failed to implement a system for monitoring and enforcing that limit for five years.

The bank prohibited the financial advisers from making additional recommendations of this ETP prior to being contacted by the Commission staff.

According to the SEC, these financial advisors had a flawed understanding of the appropriate use of the volatility-linked ETP and failed to take sufficient steps to understand risks associated with holding the product for extended periods.

Having purchased and held the product in client accounts for lengthy periods, including hundreds of accounts that held the product for over a year, these managed accounts were negatively impacted by the misuse of the ETP, from January 2016 and January 2018.

Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, said: “Advisory firms must protect clients from inappropriate investments in complex financial products. We will continue to scrutinize firms’ policies and procedures related to these risky products, and we will take action when they are inadequate.”

UBS didn’t admit nor deny the findings, but agreed to disgorgement and prejudgment interest of $112,274 and a civil penalty of $8 million, which will be distributed to investors harmed by the conduct at issue.

  • Read this next

    Inside View

    Scalping or day trading?

    Among the many popular trading styles with both beginners and experienced traders are scalping, which allows you to extract small portions of profit from each price movement, and day trading, which aims to trade over a single day. In this article, you will learn what scalping and day trading are and their differences and peculiarities. Ultimately, you will learn what to look for to understand which trading style is right for you.

    Crypto Insider

    Unveiling Plasma Next: INTMAX’s Solution to Scale Ethereum with Stateless Layer

     INTMAX has launched Plasma Next on the mainnet α, a groundbreaking Layer 2 zkRollup, revealed by co-founder Leona Hioki at ETH Denver. This innovation offers scalability with constant costs per block, merging Plasma’s scalability goals with zkRollups’ security.

    Fintech

    Nuam selects Vermiculus for clearing system in Chile, Colombia, and Peru

    “We are proud to deliver a system that plays an integral role in the core of this historical merger, empowering one of Latin America’s most crucial markets with VeriClear’s state-of-the-art technology, together with our deep market expertise.”

    Retail FX

    Moomoo launches super app in Malaysia

    “As an investment platform connecting 21 million retail investors globally, we envision collaborating with exchanges, regulatory bodies, and partners in the visible future to become the gateway, connecting Malaysia’s investment products to global capital and investors.”

    Executive Moves

    FXPA elects Joe Hoffman as new Chair in its 10th anniversary

    “The opportunity to serve as Chair of the FXPA is truly an honor, and I am committed to upholding the exceptional work of a FXPA. Given the recent market fluctuations due to global tensions, inflationary pressures, shifts in monetary policy, as well as the outcome of the US election and the risk of recession, brings the potential for more FX volatility in 2024. I am dedicated to expanding the FXPA’s membership and I’m excited about collaborating with all members to echo the unified voice of the FX market.”

    Market News

    Eurozone Fights Stagnation Whilst Stock Indices Rally

    European stock markets are defying economic gloom as they continue to soar to all-time highs, showcasing resilience amidst broader economic challenges.

    Web3

    Lisk Partners with Indonesia’s Communications Ministry to Boost Web3 Startup Ecosystem

    Discover the strategic partnership between Lisk and the Indonesian Ministry of Communications and Informatics, aimed at propelling local Web3 startups to new heights through comprehensive support and education.

    Executive Moves

    Admirals appoints founder Alexander Tsikhilov as CEO

    “Striking the right balance between sourcing new talent and developing and harnessing the strength and capabilities of our current workforce, is key to achieving our vision.”

    Executive Moves

    GCEX appoints Ignacio Corral and Helen Man to UK operation

    GCEX has announced the appointment of Ignacio Corral and Helen Man to its UK FCA-regulated operation based in London as the firm further expands its global business on account of increasing demand for its digital prime brokerage services.

    <