July 19, 2021, | AtoZ Markets- The Securities and Exchange Commission (SEC) today filed a settled action against UBS Financial Services Inc. for compliance failures relating to sales of a volatility linked exchange-traded product (ETP).
More Than $8 Million Returning to Harmed Investors as Part of Ongoing Risk-Based Initiative.
"It is important for firms to put the appropriate protections in place to ensure complex products are properly evaluated and understood by their representatives. Failing to do so puts investors at risk," said Stephanie Avakian, Director of the SEC's Division of Enforcement.
UBS voluntarily undertook a review of volatility-linked ETPs, including VXX, and decided to remove VXX from the PMP platform.
The Exchange-Traded Products Initiative
The Exchange-Traded Products Initiative is led by the Division of Enforcement's Complex Financial Instruments Unit. As described in the SEC’s order, the ETP at issue is designed to track short-term volatility expectations in the market as measured against derivatives of a volatility index.
The order further finds that 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 order also finds that between January 2016 and January 2018, certain financial advisers 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.
“Advisory firms must protect clients from inappropriate investments in complex financial products,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.
What UBS Said?
UBS Financial Services Inc., a Delaware corporation, is a dual-registered brokerdealer and investment adviser. UBS has been registered with the Commission as a broker-dealer and investment adviser since 1971 and has its principal place of business in Weehawken, New Jersey.
It is a subsidiary of UBS Group AG, a publicly traded company located in Switzerland.
Without admitting or denying the SEC’s findings, UBS agreed to cease and desist from violations of Rule 206(4)-7 of the Investment Advisers Act of 1940, a censure, and 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.
Respondent shall pay disgorgement, prejudgment interest, and a civil monetary penalty totaling $8,112,274 as follows:
1. Respondent shall pay disgorgement of $96,344 and prejudgment interest of $15,930, consistent with the provisions of Subsection C.
2. A civil monetary penalty in the amount of $8,000,000,consistent with the provisions of this Subsection C.
3. Within ten (10) days of the issuance of this Order, Respondent shall deposit $8,112,274 (the “Distribution Fund” or “Fair Fund”) into an escrow account at a financial institution not unacceptable to the Commission staff and Respondent shall provide evidence of such deposit in a form acceptable to the Commission staff.
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