The Securities and Exchange Commission (SEC) has announced that Bloomberg will pay a $5 million penalty for misleading disclosures related to its BVAL service.
Bloomberg, which provides daily price valuations for fixed-income securities to financial services entities, failed to disclose to customers that valuations for certain securities could be based on a single data input that did not adhere to previously disclosed methodologies.
According to the SEC, Bloomberg had claimed its proprietary pricing index was built upon a sophisticated algorithm that produced its figures, but in some cases, the numbers were based on a single broker’s quote.
The service, called BVAL, provides a daily pricing index for around 2.5 million securities in numerous asset classes. Bloomberg had told customers it used complex data points to produce the prices.
But between 2016 and 2022, the company would sometimes use a single data point to come up with a figure for very thinly-traded fixed-income securities, the SEC said.
The SEC’s order notes that Bloomberg was aware that its customers, including mutual funds, may utilize BVAL prices to determine fund asset valuations.
These include valuing fund investments in government, supranational, agency, and corporate bonds, municipal bonds, and securitized products, and BVAL prices, therefore, can have an impact on the price at which securities are offered or traded.
The product was used by as many as 1,300 financial institutions to make decisions on investments, the regulatory agency said.
The SEC’s investigation was conducted by a team of officials from the Complex Financial Instruments Unit and the Chicago Regional Office, with assistance from trial counsel Robert Gordon and Howard Kaplan of the Enforcement Division’s office of Investigative and Market Analytics.
“This matter underscores that we will hold service providers, such as Bloomberg, accountable for misrepresentations that impact investors,” said Osman Nawaz, Chief of the SEC’s Division of Enforcement’s Complex Financial Instruments Unit.
Bloomberg has agreed to pay a $5 million penalty and to make changes to its BVAL pricing practices. The company has also voluntarily engaged in remedial efforts to improve its BVAL line of business.