Dr. Yan explains that brokerage firms like UBS, Bank of America and JP Morgan have incentives to shave the returns on their indexes so that payments these firms make under the structured products they issued at maturity are reduced. He says recent SEC settlements with UBS over its V10 Currency Index and with Bank of America over its VOL Index reflect awareness of the harm caused to investors by self-indexing.
Dr. McCann points out that UBS and Bank of America were not the only firms that built phantom "trading costs" into their indexes – trading costs not built into the Standard and Poor's indexes other brokerage firms use to determine their structured products' payoffs. He says that JP Morgan's Strat VOL related structured products is another example of the spurious complexity firms build into these indexes making regulatory oversight more difficult and allowing issuers to deceptively sell structured products.
This study and other working papers are available at slcg.com/securities-research.php
Securities Litigation and Consulting Group, Inc. ("SLCG") is a financial economics consulting firm based in the Virginia suburbs of Washington, DC. SLCG provides consulting services and expert witnesses to law firms, corporations, individuals and state and federal agencies involved in complex litigation throughout the United States.
For further information about SLCG or its research, please contact Dr. McCann at 703-246-9381 or CraigMcCann@slcg.com, Dr. Qin at 703-539-6778 or ChuanQin@slcg.com and Dr. Yan at 703-539-6770 or MikeYan@slcg.com or visit us at www.slcg.com.
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SOURCE Securities Litigation and Consulting Group, Inc.