In a JPMorgan prospectus for one of the securities, the bank described its method for determining the value of the notes using its own index based on movements in VIX futures. It said the level of the index would be reduced by two fees, one of 0.75 percent a year, the other ranging from 0.2 to 0.5 percent applied each day to hypothetical futures positions. The bank also said that the fee did not impact the value of the notes. According to the study from the Securities Litigation & Consulting Group, the fees reduced the index by at least 4.8 percent, and on average by 10.6 percent.
Securities Litigation & Consulting Group, based in Fairfax, Virgina, offers expert witnesses to parties involved in legal disputes, including plaintiffs’ firms. It has published research on structured notes in the Journal of Investing.
Judy Burns, a spokeswoman for the Securities and Exchange Commission, and Michelle Ong, a spokeswoman for brokerage industry regulator Financial Industry Regulatory Authority, declined to comment on the study.
In June, the SEC and Finra fined Bank of America Corp. unit Merrill Lynch $15 million for allegedly failing to adequately inform investors of costs embedded in their securities. Merrill Lynch neither admitted nor denied the findings. At the time, Bill Halldin, a spokesman for Bank of America, said that the bank’s volatility-linked note “was specifically designed as a hedge to protect clients against volatility in the stock market and to be one part of a larger portfolio strategy.”
UBS Group AG paid $19.5 million to the SEC in 2015 for allegedly misstating how a proprietary currency index was calculated. The bank did not admit nor deny the findings. Erica Chase, a spokeswoman for UBS, declined to comment.
This article was provided by Bloomberg News.