Updated with clarification
Bloomberg Finance LP agreed to pay a $5 million fine to the Securities and Exchange Commission over charges the company provided misleading disclosures related to its paid subscription service for fixed-income valuations.
Bloomberg’s BVAL service provides daily prices for all asset classes, including certain fixed-income securities that are thinly traded and hard to price. According to a cease-and-desist order filed last week by the SEC, Bloomberg had been misleading customers since 2016 by failing to disclose that its independent valuations of fixed-income securities were derived from proprietary algorithmic methodologies that could be based on a single data input.
“Bloomberg made disclosures to its customers that did not explicitly include that valuations for certain thinly-traded fixed-income securities could, in certain circumstances, be largely driven by a single data input, such as a broker quote,” the SEC said in its order. “The omission that valuations could be largely driven by a single data input made the statements to customers regarding valuation methodologies materially misleading.”
The SEC’s order said Bloomberg was aware that its customers, including mutual funds, could be using BVAL prices to determine fund asset valuations, which can impact securities prices.
“Bloomberg has assumed a critical role as a pricing service to participants in the fixed-income markets and it is incumbent on Bloomberg, as well as on other pricing services, to provide accurate information to their customers about their valuation processes,” Osman Nawaz, chief of the SEC’s complex financial instruments unit, said in a release. “This matter underscores that we will hold service providers, such as Bloomberg, accountable for misrepresentations that impact investors.”
The order, which included Bloomberg’s settlement, noted that Bloomberg voluntarily engaged in remedial efforts to make improvements to its BVAL line of business, including retaining an outside expert to make improvements, as well as making additional disclosures regarding its valuation methodologies.
Bloomberg did not immediately respond to a request for comment.