RISK FACTORS
The ETNs are unsecured indebtedness of Barclays Bank PLC and are not secured debt. The ETNs are riskier than ordinary unsecured debt securities. The
return on the ETNs is linked to the inverse performance of the Index. Investing in the ETNs is not equivalent to directly taking short positions in the futures included in the Index or the Index itself. See The Index in this pricing
supplement for more information.
This section describes the most significant risks relating to an investment in the ETNs.
We urge you to
read the following information about these risks, together with the other information in this pricing supplement and the accompanying prospectus and prospectus supplement, before investing in the ETNs.
The ETNs Are Linked to the Inverse Performance of the Index
Your investment in the ETNs is linked to the inverse, or short, performance of the Index. Therefore, notwithstanding the gains resulting from the accrued interest and the negative effect of
the accrued fees, your ETNs will generally appreciate as the level of the Index decreases and will decrease in value as the level of the Index increases. You may lose some or all of your investment if the level of the Index increases over the term
of your ETNs.
We Will Automatically Redeem Your ETNs if, on Any Valuation Date Prior to or On the Final Valuation Date, the Intraday
Indicative Note Value of the ETNs is Less Than or Equal to 50.0% of the Principal Amount per ETN
If, on any valuation date prior to or on
the final valuation date, the intraday indicative note value becomes less than or equal to $10.00 per ETN or 50.0% of the principal value of the ETNs, an automatic termination event will be deemed to have occurred and the ETNs will be automatically
redeemed (in whole but not in part) in an amount equal to the automatic redemption value. Upon the occurrence of an automatic termination event, the ETNs will be automatically redeemed even if the intraday indicative note value at any time after the
occurrence of the automatic termination event exceeds $10.00 per ETN.
An Automatic Termination Event May Occur As A Result of a
Precipitous Increase in Volatility in the U.S. Equity Markets and is Highly Likely to Occur if the Historical Frequency of Precipitous Increases in Volatility in the U.S. Equity Markets Persists
Historically, volatility levels of the U.S. equity markets have tended to react to rapid market downturns and stress events by
spiking up precipitously. In these circumstances, it is expected that the level of the Index would react to such volatility by similarly increasing at a precipitous rate. For example, as illustrated under The IndexHistorical Performance
of the Index, if the Index had been in existence between September 1, 2008 and December 1, 2008, which was a period that experienced high levels of volatility in the U.S. equity markets and a significant decline in the S&P 500
®
, the level of the Index would have increased from 48,680.08 on September 1, 2008 to 189,779.55 on
December 1, 2008. Moreover, as Example 1 in the section Hypothetical Examples illustrates, an automatic termination event would have been triggered during this period had the ETNs been outstanding at that time. Therefore, if periods
of high market volatility occur during the term of your ETNs, in particular in connection with rapid market downturns and stress events, the level of the Index may increase at a precipitous rate, which may result in triggering an automatic
termination event. If the historical frequency of precipitous increases in market volatility persist, it is highly likely that an automatic termination event will occur.
As described below under Use of Proceeds and Hedging in this pricing supplement, we or one or more of our affiliates may hedge our obligations under the ETNs by taking positions in the VIX
futures (which are used to calculate the Index) or related instruments. On the occurrence of an automatic termination event, we or one or more of our affiliates may unwind such hedges. Any of these hedging or unwinding activities may adversely
affect the market price of those instruments or items and, therefore, the level of the Index, the market value of the ETNs and/or the automatic redemption value. With respect to any of the activities described above, neither Barclays Bank PLC nor
its affiliates has any obligation to take the needs of any buyer, seller or holder of the ETNs into consideration at any time. See Our Business Activities May
PS-11
Create Conflicts of Interest and Hedging Activities (Including Unwinding of Hedges) by Barclays Bank PLC or Its Affiliates That Involve Trading or Other Transactions in the Equity
Securities Underlying the S&P 500
®
or Instruments Linked to the Index, the VIX Index, the S&P 500
®
, or the Equity Securities Underlying the S&P 500
®
May Impair the Market Value of the ETNs, Could Trigger an Automatic Termination Event With Respect to the ETNs and, Upon the Occurrence of an Automatic
Termination Event, Could Adversely Affect the Automatic Redemption Value in this pricing supplement for more details
The Occurrence
of an Automatic Termination Event May Adversely Affect the Value of, and the Ability to Sell or Redeem, the ETNs
As discussed above, we
will automatically redeem the ETNs (in whole, but not in part) upon the occurrence of an automatic termination event. The payment you receive following the redemption of your ETNs in this situation will most likely be significantly less than the
principal amount of your ETNs and, if the level of the Index continues to increase precipitously from the occurrence of the automatic termination event to the close of business on the automatic termination date, may equal $0. The automatic
redemption of your ETNs upon the occurrence of an automatic termination event may adversely impact your ability to sell your ETNs, and/or the price at which you may be able to sell your ETNs, following the occurrence of an automatic termination
event. Additionally, if you elect to redeem your ETNs and an automatic termination event occurs after your election but prior to the close of business on the applicable valuation date, your election to redeem will be deemed ineffective, and your
ETNs will be automatically redeemed on the automatic redemption date at an amount equal to the automatic redemption value.
If an Automatic
Termination Event Occurs, Your Payment on the Automatic Redemption Date May Be Less Than the Intraday Indicative Note Value at the Time of the Automatic Termination Event
As discussed above, we will automatically redeem the ETNs (in whole but not in part) if the intraday indicative note value of the
ETNs becomes less than or equal to 50.0% of the principal amount of each ETN or $10.00 per ETN. The intraday indicative note value is published by the NYSE Arca and is based on the latest published level of the Index. It is possible that the market
prices of the relevant futures underlying the Index may vary significantly between the time of the automatic termination event and the time the automatic redemption value is calculated after the close of business on the automatic termination date,
including potentially as a result of our trading activities or unwinding our hedges during this period, as described further in the risk factors Trading and Other Transactions by Barclays Bank PLC or Its Affiliates in the Equity Securities
Underlying the S&P 500
®
or Instruments Linked to the Index, the VIX Index, the S&P 500
®
, or the Equity Securities Underlying the S&P 500
®
May Impair the Market Value of the ETNs, Could Trigger an Automatic Termination Event With Respect to the ETNs and, Upon the Occurrence of an Automatic
Termination Event, Could Adversely Affect the Automatic Redemption Value and Hedging Activities (Including Unwinding of Hedges) by Barclays Bank PLC or Its Affiliates That Involve Trading or Other Transactions in the Equity Securities
Underlying the S&P 500
®
or Instruments Linked to the Index, the VIX Index, the S&P 500
®
, or the Equity Securities Underlying the S&P 500
®
May Impair the Market Value of the ETNs, Could Trigger an Automatic Termination Event With Respect to the ETNs and, Upon the Occurrence of an Automatic
Termination Event, Could Adversely Affect the Automatic Redemption Value of the ETNs. As a result, you may receive a payment following an automatic termination event that is significantly less than 50.0% of the principal amount of your ETNs.
The minimum automatic redemption value is $0 per ETN, meaning that you can lose up to your entire principal amount following the occurrence of an automatic termination event
.
Unlike Certain Inverse Exchange Traded Funds, Your ETNs Do Not Include a Daily Reset Mechanism, and Accordingly the Daily Performance of the ETNs Does Not Reflect a Compounded Return
Your ETNs operate differently than certain inverse exchange traded funds (
ETFs
) that have a daily reset
mechanism that seeks to provide investors in such ETFs a return based on a fixed multiple of the inverse performance of an underlying reference asset on a given day.
PS-12
The reset mechanism of such ETFs is applied so that the return on investments in such ETFs will correspond to a fixed multiple (e.g., negative one times) of the daily return on the
underlying reference asset on any given day, before fees and expenses. The reset mechanism of such ETFs has the impact of compounding the performance of the underlying reference asset on a daily basis. This compounding effect can be positive for the
investor, particularly if there are consistently negative returns each day for the underlying reference asset.
Your ETNs do not operate in
this manner, as they do not have a daily reset mechanism. Nor do your ETNs target a fixed multiple (e.g., negative one times) of the daily return in the performance of the Index. Instead, your ETNs are designed to target a return of negative one
times the performance of the Index over the term of the ETNs. As a consequence, the daily returns on the inverse performance of the Index are not compounded.
The Ratio Between the Value of Your ETNs and the Notional Exposure to the Underlying Index of Each ETN Will Fluctuate During the Term of Your ETNs
As mentioned in the previous risk factor, your ETNs do not incorporate a reset mechanism that regularly adjusts the notional exposure to the
performance of the Index in order to achieve certain short-term performance characteristics, such as delivering a fixed daily multiple of Index percentage returns. Such reset mechanisms typically act to keep a constant ratio between the
value of each security and the exposure to the relevant index underlying such security.
Since your ETNs do not reset in this
manner, the extent to which your ETNs participate in the inverse performance of the Index, as measured by multiples of
daily
percentage returns or, equivalently, as measured by the ratio between the notional exposure to the performance of the
Index and the value of each ETN, is likely to differ from a multiple of negative one. Consequently, both on any given day and over longer periods, your investment in the ETNs may underperform compared to a comparable investment where the daily
return tracks a multiple of negative one times the performance of the underlying reference asset. For more information on how you will be able to obtain an indication of the participation of the ETNs in the performance of the Index on a daily basis,
see Valuation of the ETNsParticipation.
Your Payment at Maturity or Upon Redemption Will Be Significantly Reduced by the
Accrued Fees, Regardless of the Performance of the Index
Your payment at maturity or upon redemption will be significantly reduced by the
accrued fees (and, in the case of optional redemption, a one-time redemption charge). The accrued fees are compounded daily and will increase at a rate of 0.89% throughout the term of the ETNs. As such, the level of the Index must decrease
significantly in order to offset the substantial accrued fees (and, in the case of optional redemption, the one-time redemption charge). If the level of the Index does not decrease sufficiently, your return at maturity or upon redemption may be less
than that of a comparable investment in ETNs with lower fees and may also be less than the principal amount of your investment in the ETNs.
The Accrued Fees May Be Greater Than, and the Accrued Interest May Be Less Than, the Fees or Interest You May Accrue in Connection With an Alternative
Investment
The closing indicative note value, and therefore your payment at maturity or upon redemption, is increased through the addition
of accrued interest and reduced by the deduction of accrued fees (and, in the case of optional redemption, a redemption charge). See Your Payment at Maturity or Upon Redemption Will Be Significantly Reduced by the Accrued Fees, Regardless of
the Performance of the Index above for more information regarding the calculation of accrued fees. The accrued interest seeks to represent an amount of interest that investors might receive if they were to invest an amount equal to the closing
indicative note value into an interest-bearing bank account. If the accrued fees (and, in the case of optional redemption, a redemption charge) are greater than, and the accrued interest is less than, the fees and interest you may have otherwise
incurred or accrued in connection with an alternative investment in the inverse performance of the Index over the same term, your return on the ETNs may be less than your return on such alternative investment.
PS-13
Changes in the 28-Day U.S. Treasury Bill Rate May Affect the Value of Your ETNs
The value of the ETNs is linked, in part, to the rate of interest that could be earned on an investment of the value of the ETNs at the T-Bill rate, which
comprises the weekly investment rate for 28-day U.S. Treasury bills (as described in further detail under Specific Terms of the ETNs). Changes in the prevailing investment rate for 28-day U.S. Treasury bills, and therefore the T-Bill
rate, may affect the amount payable on your ETNs at maturity or upon redemption and, therefore, the market value of your ETNs. Any decrease in T-Bill rate will decrease the rate at which the accrued interest increases and will, therefore, adversely
affect the amount payable on your ETNs at maturity or upon redemption.
There Are Potential Conflicts of Interest Between You and the
Calculation Agent
Barclays Bank PLC currently serves as the calculation agent for the ETNs. The calculation agent will, among other
things, decide the amount of the return paid out to you on your ETNs at maturity, upon optional redemption or upon redemption following an automatic termination event. For a more detailed description of the calculation agents role, see
Specific Terms of the ETNsRole of Calculation Agent in this pricing supplement.
If the index sponsor were to discontinue or
suspend calculation or publication of the Index, it may become difficult to determine the market value of the ETNs. If events such as these occur, or if the level of the Index is not available or cannot be calculated for any reason, the calculation
agent may be required to make a good faith estimate in its sole discretion of the level of the Index or to postpone the relevant valuation date or the maturity date. The calculation agent will exercise its judgment when performing its functions.
Since determinations by the calculation agent may affect the market value of the ETNs, the calculation agent may have a conflict of interest if it needs to make any such determination.
The VIX Index Is a Theoretical Calculation and Is Not a Tradable Index
The VIX Index is a
theoretical calculation and cannot be traded on a spot price basis. The settlement price at maturity of the VIX futures contained in the Index is based on this theoretically derived calculation. As a result the behavior of the futures contracts may
be different from futures contracts whose settlement price is based on a tradable asset.
Your ETNs Are Not Linked to the Inverse of the
VIX Index and the Value of Your ETNs May Be Less Than It Would Have Been Had Your ETNs Been Linked to the Inverse of the VIX Index
The
value of your ETNs will be linked to the inverse performance of the underlying Index, and your ability to benefit inversely from any rise or fall in the level of the VIX Index is limited. The Index underlying your ETNs is based upon holding a
rolling long position in futures on the VIX Index. These futures will not necessarily track the performance of the VIX Index. Your ETNs may not benefit from decreases in the level of the VIX Index because such decreases will not necessarily cause
the level of VIX Index futures to decrease. Accordingly, a hypothetical investment that was linked directly to the inverse performance of the VIX Index could generate a higher return than your ETNs.
The VIX Index Is A Measure of Forward Volatility of the S&P 500
®
and Your ETNs Are Not Linked to the Options Used to Calculate the VIX Index, to the Actual Volatility of the S&P 500
®
or the Equity Securities Included in the S&P 500
®
, Nor Will the Return on Your ETN Be a Participation in the Actual Volatility of the S&P 500
®
The VIX Index measures the
30-day forward volatility of the S&P 500
®
as calculated based on the prices of certain put and call options
on the S&P 500
®
. The actual volatility of the S&P 500
®
may not conform to a level predicted by the VIX Index or to the prices of the put and call options included in the
calculation of the VIX Index. The value of your ETNs is based on the value of the relevant futures on the VIX Index included in the Index underlying your ETNs. Your ETNs are not linked to the realized volatility of the S&P 500
®
and will not reflect the return you would realize if you owned, or held a short position in, the equity securities
underlying the S&P 500
®
or if you traded the put and call options used to calculate the level of the VIX
Index
.
PS-14
Changing Prices of the Futures Contracts Included in the Index May Result in a Reduced Amount Payable at
Maturity or Upon Redemption
The Index is composed of futures contracts on the VIX Index. Unlike equities, which typically entitle the
holder to a continuing stake in a corporation, futures contracts normally specify a certain date for delivery of the underlying asset or for settlement in cash based on the level of the underlying asset. As the futures contracts that comprise the
Index approach expiration, they are replaced by similar contracts that have a later expiration. Thus, for example, a futures contract purchased and held in August may specify an October expiration. As time passes, the contract expiring in October
may be replaced by a contract for delivery in November. This process is referred to as rolling. Many of the contracts included in the Index have historically traded in contango markets. Contango markets are those in which the
prices of contracts are higher in the distant delivery months than in the nearer delivery months. VIX futures have frequently exhibited very high contango in the past, resulting in a significant cost to roll the futures. The existence of
contango in the futures markets could result in negative roll yields, which could adversely affect the value of the Index and consequently increase the value of your ETNs. If the market for these contracts is (putting aside other
considerations) in backwardation, which means that the prices are lower in the distant delivery months than in the nearer delivery months, the sale of the October contract would take place at a price that is higher than the price of the
November contract, thereby creating a positive roll yield. The actual realization of a potential roll yield will be dependent upon the level of the related VIX Index price relative to the unwind price of the relevant VIX Index futures
contract at the time of hypothetical sale of the contract. Since your ETNs are linked to the inverse performance of the index such positive roll yield could adversely affect the performance of your ETNs and, accordingly, decrease the
payment you receive at maturity or upon redemption. Moreover, the effect of positive roll yield could contribute to the occurrence of an automatic termination event in certain circumstances
The Level of the VIX Index Has Historically Reverted to a Long-Term Mean Level, and If the Spot Level of the VIX Index Behaves Consistently With Past Trends, Your Returns on the ETNs Would Be Limited
In the past, the level of the VIX Index has typically reverted over the longer term to a historical mean, and its absolute level has been
constrained within a band. If the spot level of the VIX Index behaves consistently with past trends, and the potential upside of your investment in your ETNs would correspondingly be limited as a result.
The Policies of the Index Sponsor and the CBOE and Changes That Affect the Composition and Valuation of the S&P 500
®
, the VIX Index or the Underlying Index Could Affect the Amount Payable on Your ETNs and Their Market Value
The policies of the index sponsor and the CBOE concerning the calculation of the level of the S&P 500
®
, the VIX Index and the Index, respectively, and any additions, deletions or substitutions of equity securities or
options contracts and the manner in which changes affecting the equity securities, options contracts or futures contracts are reflected in the S&P 500
®
, the VIX Index or the Index, respectively, could affect the value of the Index and, therefore, the amount payable on your ETNs at maturity or upon redemption and the
market value of your ETNs prior to maturity.
S&P Indices can add, delete or substitute the equity securities
underlying the S&P 500
®
or make other methodological changes that could change the level of the S&P 500
®
. S&P Indices can also add, delete or substitute the futures contracts underlying the underlying Index or make
other methodological changes that could change the level of the Index. The changing of equity securities included in the S&P
500
®
may affect the S&P 500
®
, as a newly added equity security may perform significantly better or worse than the equity security or securities it replaces. Such a change may also affect the
value of the put and call options used to calculate the level of the VIX Index. The changing of the futures contracts underlying the Index may affect the performance of the Index in similar ways. Additionally, S&P Indices may alter, discontinue
or suspend calculation or
PS-15
dissemination of the S&P 500
®
or the Index. Any of
these actions could adversely affect the value of your ETNs. S&P Indices has no obligation to consider your interests in calculating or revising the S&P 500
®
or the Index. See The S&P
500
®
and The Index below.
The CBOE can make methodological changes to the calculation of the VIX Index that could affect the value of futures contracts on the VIX Index and, consequently, the value of your ETNs. There can be no
assurance that the CBOE will not change the VIX Index calculation methodology in a way which may affect the value of your ETNs. Additionally, the CBOE may alter, discontinue or suspend calculation or dissemination of the VIX Index and/or the
exercise settlement value. Any of these actions could adversely affect the value of your ETNs. The CBOE has no obligation to consider your interests in calculating or revising the VIX Index or in calculating the exercise settlement value. See
The VIX Index below.
If events such as these occur, or if the value of any underlying Index is not available or cannot be
calculated because of a market disruption event or for any other reason, the calculation agent may be required to make a good faith estimate in its sole discretion of the value of such Index. The circumstances in which the calculation agent will be
required to make such a determination are described more fully under Modifications to the IndexMarket Disruption and Force Majeure Events Relating to the ETNs and Role of Calculation Agent.
The Index May in the Future Include Contracts That Are Not Traded on Regulated Futures Exchanges
The Index is currently based solely on futures contracts traded on regulated futures exchanges (referred to in the United States as designated
contract markets). If these exchange-traded futures cease to exist, the Index may also cease to exist or may in the future include over-the-counter contracts (such as swaps and forward contracts) traded on trading facilities that are subject
to lesser degrees of regulation or, in some cases, no substantive regulation. As a result, trading in such contracts, and the manner in which prices and volumes are reported by the relevant trading facilities, may not be subject to the provisions
of, and the protections afforded by, the U.S. Commodity Exchange Act of 1936, or other applicable statutes and related regulations, that govern trading on regulated U.S. futures exchanges. In addition, many electronic trading facilities have only
recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities, and the inclusion of such contracts in an Index, may be subject to certain risks not presented by U.S.
exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts.
The Index and
VIX Index Futures Have Limited Historical Information
The Index underlying your ETNs was created in December 2008, and the index sponsor
has published limited information about how the Index would have performed had it been calculated in the past. In addition, futures on the VIX Index have only traded freely since March 26, 2004, and not all futures of all relevant maturities
have traded at all times since that date.
Because the Index and the VIX Index futures that underlie them are of recent origin and limited or
no historical performance data exists with respect to them, your investment in the ETNs may involve a greater risk than investing in alternate securities linked to one or more indices with an established record of performance. A longer history of
actual performance may have been helpful in providing more reliable information on which to assess the validity of the proprietary methodology that the Index makes use of as the basis for an investment decision.
Your ETNs are Linked to an Excess Return Index and Not a Total Return Index
The ETNs are linked to an excess return index and not a total return index. The Index is intended to reflect the returns that are potentially available through an unleveraged investment in certain futures
contracts on the VIX Index. The Index is calculated on an excess return basis because the Index level on any given index business day does not reflect the rate of interest that could be earned on reinvestment into the Index of the return on the
notional value of the
PS-16
Index. By contrast, the total return version of the Index (i.e., the S&P 500 VIX Short-Term Futures Index TR) is intended to reflect the returns that are potentially available through
such an unleveraged investment plus the specified Treasury Bill rate that could be earned on the notional value of the Index, which would then be reinvested at that rate. Investing in the ETNs may, therefore, not generate the same return as one
would obtain from investing in the inverse performance of the total return version of the Index.
Historical Levels of Comparable Indices
Should Not Be Taken as an Indication of the Future Performance of any Index During the Term of the ETNs
It is impossible to predict
whether the Index will rise or fall. The actual performance of the Index over the term of the ETNs, as well as the amount payable at maturity or upon redemption, may bear little relation to the historical levels of comparable indices, which in most
cases have been highly volatile.
Hedging Activities (Including Unwinding of Hedges) by Barclays Bank PLC or Its
Affiliates That Involve Trading or Other Transactions in the Equity Securities Underlying the S&P 500
®
or
Instruments Linked to the Index, the VIX Index, the S&P 500
®
, or the Equity Securities Underlying the
S&P 500
®
May Impair the Market Value of the ETNs, Could Trigger an Automatic Termination Event With
Respect the ETNs and, Upon the Occurrence of an Automatic Termination Event, Could Adversely Affect the Automatic Redemption Value
As described below under Use of Proceeds and Hedging in this pricing supplement, we or one or more of our affiliates may hedge our obligations under the ETNs by purchasing or selling equity
securities underlying the S&P 500
®
or listed or over-the-counter options, futures, swaps or other derivative
financial instruments linked to the Index, the VIX Index (including the VIX futures which are used to calculate the Index), the S&P 500
®
(including the put and call options used to calculate the level of the VIX Index) and the equity securities underlying the S&P 500
®
, and we may adjust these hedges by, among other things, purchasing or selling any of the foregoing. Any of these
hedging activities may adversely affect the market price of those instruments or items and, therefore, the level of the Index, the market value of your ETNs, the intraday indicative note value of your ETNs and/or, upon the occurrence of an automatic
termination event, the automatic redemption value of your ETNs. It is possible that we or one or more of our affiliates could receive substantial returns from these hedging activities while the market value of your ETNs declines. It is also possible
that the hedging activities by us or one or more of our affiliates could cause the intraday indicative note value of the ETNs to become less than or equal to 50.0% of the principal amount per ETN, thereby triggering an automatic termination event.
In addition, it is possible that, upon the occurrence of an automatic termination event, our hedging activities, unwind of our hedges, or any other trading activities may act to increase the level of the Index between the occurrence of the automatic
termination event and the calculation of the automatic redemption value after the close of business on the automatic termination date and could have an adverse effect on the automatic redemption value, including resulting in a payment to investors
on the automatic redemption date that is less than the intraday indicative note value at the time of the automatic termination event.
Trading and Other Transactions by Barclays Bank PLC or Its Affiliates in the Equity Securities Underlying the S&P 500
®
or Instruments Linked to the Index, the VIX Index, the S&P 500
®
, or the Equity Securities Underlying the S&P 500
®
(Other Than Hedging Activities) May Also Impair the Market Value of the ETNs, Could Trigger an Automatic Termination Event With Respect to the ETNs and, Upon the
Occurrence of an Automatic Termination Event, Could Adversely Affect the Automatic Redemption Value
We or one or more
of our affiliates may also engage in trading in equity securities underlying the S&P 500
®
or listed or
over-the-counter options, futures, swaps or other derivative financial instruments linked to the Index, the VIX Index (including the VIX futures which are used to calculate the Index), the S&P
500
®
(including the put and call options used to calculate the level of the VIX Index) and the equity securities
PS-17
underlying the S&P 500
®
on a regular basis as part of
our general broker-dealer and other businesses, for proprietary accounts, for hedging or reducing risk of loss to us or an affiliate, for other accounts under management or to facilitate transactions for customers. In particular with respect to VIX
futures (which form the basis of the Index) and other derivative financial instruments linked to the VIX Index, as part of our general broker-dealer and other businesses, for proprietary accounts, for hedging or reducing risk of loss to us or an
affiliate, for other accounts under management or to facilitate transactions for customers, we and/or one or more of our affiliates may represent a significant portion, or even a majority, of the reported traded volume of such instruments on any
given index business day. Any of these activities could adversely affect the level of the Index, the market price of those instruments or items and, therefore, the market value of your ETNs and/or the intraday indicative note value of your ETNs,
which could trigger the occurrence of an automatic termination event. In addition, we would expect to continue to engage in these activities from the occurrence of an automatic termination event to the close of business on the automatic termination
date when the automatic redemption value is calculated, and accordingly such activities could have an adverse effect on the automatic redemption value. We or one or more of our affiliates may also issue or underwrite other securities or financial or
derivative instruments with returns linked or related to changes in the performance of any of the foregoing. By introducing competing products into the marketplace in this manner, we or one or more of our affiliates could adversely affect the market
value of your ETNs and/or the intraday indicative note value of your ETNs, which could trigger the occurrence of an automatic termination event. With respect to any of the activities described above, neither Barclays Bank PLC nor its affiliates has
any obligation to take the needs of any buyer, seller or holder of the ETNs into consideration at any time.
Our Business Activities May
Create Conflicts of Interest
We and our affiliates expect to play a variety of roles in connection with the issuance of the ETNs.
As noted above, we and our affiliates expect to engage in trading activities related to equity securities underlying the
S&P 500
®
or listed or over-the-counter options, futures, swaps or other derivative financial instruments
linked to the Index, the VIX Index (including the VIX futures which are used to calculate the Index), the S&P
500
®
(including the put and call options used to calculate the level of the VIX Index) and the equity securities
underlying the S&P 500
®
that are not for the account of holders of the ETNs or on their behalf. In
particular with respect to VIX futures (which form the basis of the Index) and other derivative financial instruments linked to the VIX Index, as part of our general broker-dealer and other businesses, for proprietary accounts, for hedging or
reducing risk of loss to us or an affiliate, for other accounts under management or to facilitate transactions for customers, we or one or more of our affiliates may represent a significant portion, or even a majority, of the reported traded volume
of such instruments on any given index business day. These trading activities may present a conflict between the holders interest in the ETNs and the interests that we and our affiliates will have in our and our affiliates proprietary
accounts, in hedging or loss reduction transactions, in facilitating transactions, including options and other derivatives transactions, for our and our affiliates customers and in accounts under our and our affiliates management. These
trading activities, if they influence the level of the Index, the VIX Index, the S&P 500
®
or any financial
instrument linked thereto, could be adverse to the interests of the holders of the ETNs and could trigger the occurrence of an automatic termination event.
Moreover, we and our affiliates may have published and in the future may publish research reports with respect to equity securities underlying the S&P 500
®
or listed or over-the-counter options, futures, swaps or other derivative financial instruments linked to the Index,
the VIX Index (including the VIX futures which are used to calculate the Index), the S&P 500
®
(including the
put and call options used to calculate the level of the VIX Index) and the equity securities underlying the S&P
500
®
. This research is modified from time to time without notice and may express opinions or provide
recommendations that are inconsistent with purchasing or holding the ETNs. The research should not be viewed as a recommendation or endorsement of the ETNs in any way and investors must make their own independent investigation of the merits of this
investment.
PS-18
Any of these activities by us or our affiliates may affect the market price of equity
securities underlying the S&P 500
®
or listed or over-the-counter options, futures, swaps or other derivative
financial instruments linked to the Index, the VIX Index (including the VIX futures which are used to calculate the Index), the S&P 500
®
(including the put and call options used to calculate the level of the VIX Index) and the equity securities underlying the S&P 500
®
and, therefore, the market value of your ETNs. It is also possible that trading activities by us and/or one or more
of our affiliates could cause the intraday indicative note value the ETNs to become less than or equal to 50.0% of the principal amount per ETN, thereby triggering an automatic termination event. It is also possible that, upon the occurrence of an
automatic termination event, our trading activities or unwind of our hedges may act to increase the level of the Index between the occurrence of the automatic termination event and the calculation of the automatic redemption value after the close of
business on the automatic termination date, resulting in a payment to investors on the automatic redemption date that is less than the intraday indicative note value at the time of the automatic termination event.
With respect to any of the activities described above, neither Barclays Bank PLC nor its affiliates has any obligation to take the needs of any buyer,
seller or holder of the ETNs into consideration at any time.
Barclays Bank PLC and Its Affiliates Have No Affiliation with S&P Indices
and Are Not Responsible for Its Public Disclosure of Information, Which May Change Over Time
S&P Dow Jones Indices LLC, a subsidiary
of The McGraw-Hill Companies, Inc., (S&P Indices) is the sponsor of the Index. We and our affiliates are not affiliated with S&P Indices in any way and have no ability to control or predict its actions, including any errors in,
or discontinuation of disclosure regarding S&P Indices methods or policies relating to the calculation of the Index in its capacity as the sponsor of the Index. S&P Indices is not under any obligation to continue to calculate the Index
or required to calculate any successor index. If S&P Indices discontinues or suspends the calculation of the Index, it may become difficult to determine the value of the ETNs or the amount payable at maturity or upon redemption. The calculation
agent may designate a successor index selected in its sole discretion. If the calculation agent determines in its sole discretion that no successor index comparable to the Index exists, the amount you receive at maturity or upon redemption will be
determined by the calculation agent in its sole discretion. See Reference AssetsIndicesAdjustments Relating to Securities with the Reference Asset Comprised of an Index or Indices in the accompanying prospectus supplement.
Substantially all disclosure in this pricing supplement regarding the Index, including its make-up, method of calculation and changes in its components, is derived from publicly available information. We have not independently verified this
information. You, as an investor in the ETNs, should make your own investigation into the Index and S&P Indices. S&P Indices has no obligation to consider your interests as a holder of the ETNs.
There May Not Be an Active Trading Market in the ETNs; Sales in the Secondary Market May Result in Significant Losses
Although we have listed the ETNs on NYSE Arca, a trading market for the ETNs may not exist at any time. Even if there is a secondary market for the ETNs,
it may not provide enough liquidity to trade or sell your ETNs easily. In addition, although certain affiliates of Barclays Bank PLC may or intend to engage in limited purchase and resale transactions in the ETNs, they are not required to do so, and
if they decide to engage in such transactions, they may stop at any time. We are not required to maintain any listing of the ETNs on any securities exchange.
The Liquidity of the Market for the ETNs May Vary Materially Over Time
As stated on the
cover of this pricing supplement, we sold a portion of the ETNs on the inception date, and the remainder of the ETNs will be offered and sold from time to time through Barclays Capital Inc., our affiliate, as agent. Also, the number of ETNs
outstanding or held by persons other than our affiliates could be reduced at any time due to optional redemptions of the ETNs. Accordingly, the liquidity of the
PS-19
market for the ETNs could vary materially over the term of ETNs. While you may elect to redeem your ETNs prior to maturity, optional redemption is subject to the conditions and procedures
described elsewhere in this pricing supplement, including the condition that you must redeem at least 50,000 ETNs at one time in order to exercise your right to redeem your ETNs on any optional redemption date.
There Are Restrictions on the Minimum Number of ETNs You May Redeem and on the Dates on Which You May Redeem Them
You must redeem at least 50,000 ETNs at one time in order to exercise your right to redeem your ETNs on an optional redemption date. You may only redeem
your ETNs on an optional redemption date if we receive a notice of redemption from you by no later than 4:00 p.m., New York City time, and a confirmation of redemption by no later than 5:00 p.m., New York City time, on the business day
prior to the applicable valuation date. If we do not receive your notice of redemption by 4:00 p.m., New York City time, or your confirmation of redemption by 5:00 p.m., New York City time, on the business day prior to the applicable valuation
date, your notice will not be effective and we will not redeem your ETNs on the applicable optional redemption date. Your notice of redemption and confirmation of redemption will not be effective until we confirm receipt. Additionally, if an
automatic termination event occurs after we receive your notice of redemption but prior to the close of business on the applicable valuation date, your notice of redemption will be deemed ineffective and we will automatically redeem your ETNs on the
automatic redemption date at an amount equal to the automatic redemption value. See Specific Terms of the ETNsOptional Redemption Procedures in this pricing supplement for more information.
If a Market Disruption Event Has Occurred or Exists on a Valuation Date or Immediately Following an Automatic Termination Event, the Calculation Agent
Can Postpone the Determination of, As Applicable, the Closing Indicative Note Value, the Automatic Redemption Value or the Maturity Date or a Redemption Date
The determination of the value of the ETNs on a valuation date, including the final valuation date, may be postponed if the calculation agent determines that a market disruption event has occurred or is
continuing on such valuation date. In no event, however, will a valuation date be postponed by more than five trading days. As a result, the maturity date or an optional redemption date could also be postponed, although not by more than five trading
days. If a valuation date is postponed until the fifth trading day following the scheduled valuation date but a market disruption event occurs or is continuing on such day, that day will nevertheless be the valuation date and the calculation agent
will make a good faith estimate in its sole discretion of the value of the Index for such day. See Specific Terms of the ETNsMarket Disruption Events in this pricing supplement.
Similarly, if the calculation agent is prevented from determining the automatic redemption value because a market disruption event occurs or is
continuing following the occurrence of an automatic termination event, the calculation agent may determine the automatic redemption value when the market disruption event has ceased to occur. However, if such market disruption event is continuing on
the fifth trading day after the automatic termination date, the calculation agent may make a good faith estimate in its sole discretion of the value of the Index and will determine the automatic redemption value prior to or at the close of trading
on the fifth trading day. See also If Your ETNs Are Automatically Redeemed Following the Occurrence of an Automatic Termination Event, You Will Not Benefit From Any Subsequent Decrease in the Level of the Index.
The Market Value of the ETNs May Be Influenced by Many Unpredictable Factors
The market value of your ETNs may fluctuate between the date you purchase them and the applicable valuation date. You may also sustain a significant loss if you sell your ETNs in the secondary market. We
expect that generally the value of the index components and Index will affect the market value of the ETNs more than any other factor. Several other factors, many of which are beyond our control, will influence the market value of the ETNs. Factors
that may influence the market value of the ETNs include:
|
|
prevailing market prices and forward volatility levels of the U.S. stock markets, the equity securities included in the S&P
|
PS-20
|
500
®
and the S&P 500
®
, and prevailing market prices of options on the S&P 500
®
, the VIX Index, options on the VIX Index, relevant futures contracts on the VIX Index, or any other financial instruments related to the S&P 500
®
and the VIX Index;
|
|
|
supply and demand for the ETNs, including inventory positions with Barclays Capital Inc. or any market maker;
|
|
|
the time remaining to the maturity of the ETNs;
|
|
|
economic, financial, political, regulatory, geographical, biological or judicial events that affect the level of the underlying Index or the market
price or forward volatility of the U.S. stock markets, the equity securities included in the S&P 500
®
, the
S&P 500
®
, the VIX Index or the relevant futures contracts on the VIX Index;
|
|
|
the perceived creditworthiness of Barclays Bank PLC;
|
|
|
supply and demand in the listed and over-the-counter equity derivative markets; or
|
|
|
supply and demand as well as hedging activities in the equity-linked structured product markets.
|
These factors interrelate in complex ways, and the effect of one factor on the market value of your ETNs may offset or enhance the effect of another
factor.
You Will Not Benefit from Any Decrease in the Level of the Index If Such Decrease Is Not Reflected in the Level of the Index on
the Applicable Valuation Date
If the Index does not decrease by an amount sufficient to offset the accrued fees (and, in the case of
optional redemption, the redemption charge) between the inception date and the valuation date (including the final valuation date), we will pay you less than the principal amount of your ETNs at maturity or upon optional redemption. This will be
true even if the level of the Index as of some date or dates prior to the applicable valuation date would have been sufficiently low to offset the accrued fees.
If Your ETNs Are Automatically Redeemed Following the Occurrence of an Automatic Termination Event, You Will Not Benefit From Any Subsequent Decrease in the Level of the Index
If, on any valuation date, the intraday indicative note value becomes less than or equal to $10.00 per ETN or 50.0% of the principal amount of the ETNs,
an automatic termination event will be deemed to have occurred and the ETNs will be automatically redeemed. Following the occurrence of an automatic termination event, you will not benefit from any subsequent decrease in the level of the Index that
occurs after the close of business on the automatic termination date even if such decrease occurs prior to the automatic redemption date. Instead, you will receive a payment on the automatic redemption date equal to the automatic redemption value.
Changes in Our Credit Ratings May Affect the Market Value of Your ETNs
Our credit ratings are an assessment of our ability to pay our obligations, including those on the ETNs. Consequently, actual or anticipated changes in our credit ratings may affect the market value of
your ETNs. However, because the return on your ETNs is dependent upon certain factors in addition to our ability to pay our obligations on your ETNs, an improvement in our credit ratings will not reduce the other investment risks related to your
ETNs.
You Will Not Receive Interest Payments on the ETNs or Have Rights in Respect of Any of the Futures Contracts Included in the Index
You will not receive any periodic interest payments on your ETNs. As an owner of the ETNs, you will not have rights
that investors in the index components included in the Index may have. Your ETNs will be paid in cash, and you will have no right to receive delivery of any equity securities comprising the S&P
500
®
, of any dividends or distributions relating to such securities, of payment or delivery of amounts in
respect of the options used to calculate the level of the VIX Index or of payment or delivery amounts in respect of the futures contracts included in the Index underlying your ETNs.
PS-21
The Tax Consequences Are Uncertain
The U.S. federal income tax treatment of the ETNs is uncertain and the Internal Revenue Service could assert that the ETNs should be taxed in a manner that is different than described in this pricing
supplement. As discussed further below, the Internal Revenue Service issued a notice indicating that it and the Treasury Department are actively considering whether, among other issues, you should be required to accrue interest over the term of an
instrument such as the ETNs and whether all or part of the gain you may recognize upon the sale, redemption or maturity of an instrument such as the ETNs could be treated as ordinary income. Similarly, the Internal Revenue Service and the Treasury
Department have current projects open with regard to the tax treatment of pre-paid forward contracts, contingent notional principal contracts and other derivative contracts. While it is impossible to anticipate how any ultimate guidance would affect
the tax treatment of instruments such as the ETNs (and while any such guidance may be issued on a prospective basis only), such guidance could be applied retroactively and could in any case increase the likelihood that you will be required to accrue
income over the term of an instrument such as the ETNs even though you will not receive any payments with respect to the ETNs until early redemption or maturity. The outcome of this process is uncertain. Similarly, in 2007, legislation was
introduced in Congress that, if enacted, would have required holders that acquired instruments such as the ETNs after the bill was enacted to accrue interest income on a current basis. It is not possible to predict whether a similar or identical
bill will be enacted in the future, or whether any such bill would affect the tax treatment of your ETNs.
Moreover, it is possible that the
Internal Revenue Service could seek to tax your ETNs by reference to your deemed ownership of the Index components. In such a case, it is possible that Section 1256 of the Internal Revenue Code could apply to your ETNs, in which case any gain
or loss that you recognize with respect to the ETNs that is attributable to the regulated futures contracts represented in the Index underlying your ETNs could be treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to your holding period in the ETNs. Under this approach, you could also be required to mark such portion of the ETNs to market at the end of each taxable year (i.e., recognize gain and possibly recognize loss as if the relevant
portion of your ETNs had been sold for fair market value). Under this alternative treatment, you could also be required to (i) recognize gain or loss, at least some of which could be short-term capital gain or loss, each time the Index
rebalances or each time a futures contract tracked by the Index underlying your ETNs rolls, and (ii) currently accrue ordinary interest income in respect of the notional interest component of your ETNs.
For a discussion of the U.S. federal income tax treatment applicable to your ETNs as well as other potential alternative characterizations for your ETNs,
please see the discussion under Material U.S. Federal Income Tax Considerations below. You should consult your tax advisor as to the possible alternative treatments in respect of the ETNs.
THE INDEX
We have derived the following description of the Index from the S&P U.S. Index Committee Rules, which govern the management and calculation of the Index and are published by the index sponsor. We have
also derived certain information about the Index, the S&P 500
®
and the VIX Index from public sources without
independent verification.
The Index is designed to reflect the returns that are potentially available through an
unleveraged investment in one-month and two-month futures contracts on the VIX Index (
VIX futures
). VIX futures reflect implied volatility of the S&P 500
®
at various points along the volatility forward curve. The VIX Index is calculated based on the prices of put and call options on the S&P 500
®
. Futures on the VIX Index provide investors the ability to invest in forward volatility based on their view of the
future direction or movement of the VIX Index. The Index is calculated based on the strategy of continuously owning a rolling portfolio of one-month and two-month VIX futures to target a constant weighted average futures maturity of one month.
The Index is intended to reflect the returns that are potentially available through an unleveraged investment in certain futures contracts on
the VIX Index. The Index is calculated on an excess return basis because the Index level on any given index business day does not reflect the rate of interest that could be earned on
PS-22
reinvestment into the Index of the return on the notional value of the Index. By contrast, the total return version of the Index (i.e., the S&P 500 VIX Short-Term Futures Index TR) is
intended to reflect the returns that are potentially available through such an unleveraged investment plus the specified Treasury Bill rate that could be earned on the notional value of the Index, which would then be reinvested at that rate.
Information contained on certain websites mentioned below is not incorporated by reference in, and should not be considered part of, this
pricing supplement or the accompanying prospectus supplement and prospectus.
Publication of Index Values
The level of the Index is calculated in accordance with the method described in Composition of the Index below. The value of the Index
at the close of trading on each index business day will be published by Bloomberg L.P. or a successor under the ticker symbol SPVXSP.
The S&P 500
®
The index sponsor publishes the S&P 500
®
. The S&P 500
®
is intended
to provide a broad performance benchmark for the U.S. equity markets. The daily calculation of the value of the S&P
500
®
is based on the relative value of the aggregate market value of the common stocks of 500 companies as of a
particular time compared to the aggregate average market value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943. The 500 companies are not the 500 largest companies listed on the New York Stock
Exchange and not all 500 companies are listed on such exchange.
The index sponsor chooses companies for inclusion in the
S&P 500
®
with the objective of achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of the U.S. equity market. The index sponsor may from time to time, in its sole discretion, add companies to, or delete companies from, the S&P 500
®
to achieve the objectives stated above. Relevant criteria employed by the index sponsor include the viability of the
particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the companys common stock is widely held and the market value and trading activity of the common stock of that
company.
The VIX Index
We have derived substantially all information contained in this pricing supplement regarding the VIX Index, including, without limitation, its make-up, method of calculation and changes in its components,
from publicly available information. Such information reflects the policies of, and is subject to change by, the CBOE. We make no representation or warranty as to the accuracy or completeness of such information. The VIX Index was developed by the
CBOE and is calculated, maintained and published by the CBOE. The CBOE has no obligation to continue to publish, and may discontinue the publication of, the VIX Index. The VIX Index is reported by Bloomberg L.P. under the ticker symbol
VIX.
The VIX Index is a benchmark index designed to measure the market price of volatility in large cap U.S.
stocks over 30 days in the future, and calculated based on the prices of certain put and call options on the S&P
500
®
. The VIX Index measures the premium paid by investors for certain options linked to the level of the
S&P 500
®
. During periods of market instability, the implied level of volatility of the S&P 500
®
typically increases and, consequently, the prices of options linked to the S&P 500
®
typically increase (assuming all other relevant factors remain constant or have negligible changes). This, in turn,
causes the level of the VIX Index to increase. Because the VIX Index may increase in times of uncertainty, the VIX Index is known as the fear gauge of the broad U.S. equities market. The VIX Index has historically had negative
correlations to the S&P 500
®
.
The calculation of the VIX Index involves a formula that uses the prices of a weighted series of out-of-the money put and call options on the level of the S&P 500
®
(
SPX Options
) with two adjacent expiry terms to derive a constant 30-day forward measure of
market volatility. The VIX Index is calculated independent of any particular option pricing model and in doing so seeks to eliminate any biases which may otherwise be included in using options pricing methodology based on certain assumptions.
PS-23
Although the VIX Index measures the 30-day forward volatility of the S&P 500
®
as implied by the SPX Options, 30-day options are only available once a month. To arrive at the VIX Index level, a
broad range of out-of-the money SPX Options expiring on the two closest nearby months (near term options and next term options, respectively) are selected in order to bracket a 30-day calendar period. SPX Options having a
maturity of less than eight days are excluded at the outset and, when the near term options have eight days or less left to expiration, the VIX Index rolls to the second and third contract months in order to minimize pricing anomalies that occur
close to expiration. The model-free implied volatility using prices of the near term options and next term options are then calculated on a strike price weighted average basis in order to arrive at a single average implied volatility value for each
month. The results of each of the two months are then interpolated to arrive at a single value with a constant maturity of 30 days to expiration.
Futures on the VIX Index were first launched for trading by the CBOE in 2004. VIX Index futures have expirations ranging from the front month consecutively out to the tenth month. Futures on the VIX Index
provide investors the ability to invest in forward market volatility based on their view of the future direction or movement of the VIX Index. Investors that believe the implied volatility of the S&P 500
®
will increase may buy VIX futures, expecting that the level of the VIX Index will increase. Conversely, investors
that believe that the implied volatility of the S&P 500
®
will decline may sell VIX futures, expecting that
the level of the VIX Index will fall.
VIX Index futures are reported by Bloomberg L.P. under the ticker symbol VX.
Futures Markets
The
Index is composed of futures contracts on the VIX Index. Futures contracts on the VIX Index are traded on regulated futures exchanges, in the over-the-counter market and on various types of electronic trading facilities and markets. At present, all
of the contracts included in the Index are exchange-traded futures contracts. An exchange-traded futures contract provides for the purchase and sale of a specified type and quantity of an underlying asset or financial instrument during a stated
delivery month for a fixed price. Because the VIX Index is not a tangible item that can be purchased and sold directly, a futures contract on the VIX Index provides for the payment and receipt of cash based on the level of the VIX Index at
settlement or liquidation of the contract. A futures contract provides for a specified settlement month in which the cash settlement is made or in which the underlying asset or financial instrument is to be delivered by the seller (whose position is
therefore described as short) and acquired by the purchaser (whose position is therefore described as long).
There is
no purchase price paid or received on the purchase or sale of a futures contract. Instead, an amount of cash or cash equivalents must be deposited with the broker as initial margin. This amount varies based on the requirements imposed by
the exchange clearing houses, but may be lower than 5% of the notional value of the contract. This margin deposit provides collateral for the obligations of the parties to the futures contract.
By depositing margin, which may vary in form depending on the exchange, with the clearing house or broker involved, a market participant may be able to
earn interest on its margin funds, thereby increasing the total return that it may realize from an investment in futures contracts. The market participant normally makes to, and receives from, the broker subsequent daily payments as the price of the
futures contract fluctuates. These payments are called variation margin and are made as the existing positions in the futures contract become more or less valuable, a process known as marking to the market.
Futures contracts are traded on organized exchanges, known as designated contract markets in the United States. At any time prior to the
expiration of a futures contract, subject to the availability of a liquid secondary market, a trader may elect to close out its position by taking an opposite position on the exchange on which the trader obtained the position. This operates to
terminate the position and fix the traders profit or loss. Futures contracts are cleared through the facilities of a centralized clearing house and a brokerage firm, referred to as a futures commission merchant, which is a member
of the clearing house. The clearing house guarantees the performance of each
PS-24
clearing member that is a party to a futures contract by, in effect, taking the opposite side of the transaction. Clearing houses do not guarantee the performance by clearing members of their
obligations to their customers.
Unlike equity securities, futures contracts, by their terms, have stated expirations and, at a specified
point in time prior to expiration, trading in a futures contract for the current delivery month will cease. As a result, a market participant wishing to maintain its exposure to a futures contract on a particular asset or financial instrument with
the nearest expiration must close out its position in the expiring contract and establish a new position in the contract for the next delivery month, a process referred to as rolling. For example, a market participant with a long
position in November VIX Index futures that wishes to maintain a position in the nearest delivery month will, as the November contract nears expiration, sell November futures, which serves to close out the existing long position, and buy December
futures. This will roll the November position into a December position, and, when the November contract expires, the market participant will still have a long position in the nearest delivery month.
Futures exchanges and clearing houses in the United States are subject to regulation by the Commodities Futures Trading Commission. Exchanges may adopt
rules and take other actions that affect trading, including imposing speculative position limits, maximum price fluctuations and trading halts and suspensions and requiring liquidation of contracts in certain circumstances. Futures markets outside
the United States are generally subject to regulation by comparable regulatory authorities. The structure and nature of trading on non-U.S. exchanges, however, may differ from this description.
Composition of the Index
The Index is composed of one-month and two-month VIX futures and is intended to reflect the returns that are potentially available through an unleveraged
investment in such VIX futures with a notional exposure equal to the Index level.
The Index rolls its exposure to the underlying VIX futures
on a daily basis. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, futures contracts normally specify a certain date for the delivery of the underlying asset or financial instrument or, in the case of
futures contracts relating to indices such as the VIX Index, a certain date for payment in cash of an amount determined by the level of the underlying index. As described in more detail below, the Index operates by selling futures contracts on the
VIX Index on a daily basis, specifying cash settlement on a nearby date and purchasing futures contracts on the VIX Index on a daily basis specifying cash settlement on a later date. The roll for each contract occurs on each index business day
according to a pre-determined schedule that has the effect of keeping constant the weighted average maturity of the relevant futures contracts. This process is known as
rolling
a futures position. The Index targets a constant
weighted average maturity for the VIX futures underlying the Index of one month.
Calculation of the Index
The Index models returns from a long VIX futures position that is rolled continuously throughout the period between futures expiration dates. The Index
measures the return from a rolling long position in the first and second month VIX futures. The Index rolls continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract. The ETNs are linked
inversely to the excess return version of the Index, which, in comparison to the total return version of the Index, excludes interest accrual on the notional value of the Index and the reinvestment of such interest.
On any index business day,
t
, the Index is calculated as follows:
IndexER
t
=
IndexER
t-1
* (1+
CDR
t
)
where:
IndexER
t-1
= The Index on the preceding business day, defined as any date on which the Index is calculated.
CDR
t
= Contract Daily Return, as determined by the following formula:
PS-25
where:
t-1
= the preceding business day.
TWDO
t
is the Total Dollar Weight Obtained on t, as determined by
the following formula:
TWDI
t-1
is the Total Dollar Weight Obtained on t-1, as determined
by the following formula:
where:
CRW
i
,t
=
Contract Roll Weight of the
i
th
VIX futures
contract on date t.
DCRP
i
,t
= Daily Contract Reference Price of the
i
th
VIX futures contract on date t.
Contract Rebalancing
The roll period starts on the Tuesday prior to
the monthly CBOE VIX Futures Settlement Date (the Wednesday falling 30 calendar days before the S&P 500 option expiration for the following month), and runs through the Tuesday prior to the subsequent months CBOE VIX Futures Settlement
Date. Thus, the Index is rolling on a continual basis. On the business date after the current roll period ends the following roll period will begin. In calculating the return of the Index, the Contract Roll Weights (CRW
i
,t
) of each of the contracts in the Index, on a given day, t, are determined as follows:
where:
dt
=
|
The total number of business days in the current roll period beginning with and including, the starting CBOE VIX Futures Settlement Date and ending with, but excluding,
the following CBOE VIX Futures Settlement Date. The number of business days stays constant in cases of a new holiday introduced intra-month or an unscheduled market closure.
|
dr =
|
The total number of business days within a roll period beginning with, and including the following business day and ending with, but excluding, the following
CBOE VIX Futures Settlement Date. The number of business days includes a new holiday introduced intra-month up to the business day preceding such a holiday.
|
At the close on the Tuesday, corresponding to the start of the roll period, all of the weight is allocated to the first month contract. Then on each subsequent business day a fraction of the first month
VIX futures holding is sold and an equal notional amount of the second month VIX futures is bought. The fraction, or quantity, is proportional to the number of first month VIX futures contracts as of the previous index roll day, and inversely
proportional to the length of the current roll period. In this way the initial position in the first month contract is progressively moved to the second month contract over the course of the month, until the following roll period starts when the old
second month VIX futures contract becomes the new first month VIX futures contract.
In addition to the transactions described above, the
weight of each index component is also adjusted every day to ensure that the change in total dollar exposure for the Index is only due to the price change of each contract and not due to using a different weight for a contract trading at a higher
price.
Base Date
The base
date of the Index is December 20, 2005 at a base value of 100,000.
Historical Assumptions
Prior to April 2008, not all consecutive first to seventh month VIX futures were listed. For the purpose of historical Index calculations, the following
assumptions have been made in interpolating VIX futures prices from near-by listed contracts.
When
i
th
future
was not listed, but
i
th
+1
and
i
th
-
1
futures were listed, the following interpolation has been assumed:
PS-26
When
i
th
and
i
th
+1
futures were not listed, but
i
th
+2
and
i
th
-1
futures were listed, the following interpolation has been assumed:
When
i
th
,
i
th
+1
and
i
th
+2
futures were not listed, the following interpolation has been assumed:
where:
T
i
= Expiration of the
i
th
VIX futures contract
BDays =
Number of business days between VIX futures expiration days
Index Governance
The
S&P 500 VIX Futures Index Committee maintains the Index. The Index Committee meets regularly. At each meeting, the Index Committee reviews any significant market events. In addition, the Index Committee may revise Index policy for timing of
rebalancings or other matters.
The index sponsor considers information about changes to its indices and related matters to be potentially
market moving and material.
Therefore, all Index Committee discussions are confidential.
PS-27
Historical Performance of the Index
The following graph illustrates the performance of the Index since December 20, 2005. Data from that date to the index commencement date represents
hypothetical values as if the Index had been established on December 20, 2005 and calculated according to the methodology described above since that date. Data for dates from and including the index commencement date represent the actual values
of the Index as calculated on such dates.
The historical performance of the Index shown below should not be taken as an indication of future
performance, and no assurance can be given that the value of the Index will decrease sufficiently to cause holders of the ETNs to receive a payment at maturity or upon redemption equal to or in excess of the principal amount of the ETNs (after
taking into account the effect of the accrued interest and the accrued fees).
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
PS-28
License Agreement
We have entered into an agreement with S&P Indices, the index sponsor that provides us and our affiliates with a non-transferable, limited, non-exclusive and worldwide license, for a fee, with the
right to use the Index in connection with certain securities.
Modifications to the Index
The index sponsor may revise Index policy for timing of rebalancings or other matters as described above under The IndexIndex
Governance. The effect of any such changes is described below under Specific Terms of the ETNsDiscontinuance or Modification of an Index. The index sponsor or the calculation agent may also make determinations relating to
market disruption and force majeure events as described below.
Market Disruption and Force Majeure Events Relating to the Index
If the index sponsor determines, in its sole discretion, that an exchange is forced to close early due to unforeseen events, such as
computer or electric power failures, weather conditions or other events, the index sponsor will calculate the value of each Index based on the most recent prior closing futures prices published by the CBOE and the roll of the Index for that day will
be carried to the next CBOE business day as described above under Composition of the IndexContract Rebalancing. If an exchange fails to open due to unforeseen circumstances, the index sponsor may determine not to publish the Index
for that day.
If an exchange introduces a holiday during the month of an Index calculation, the Index will not be published on that holiday
and the roll for that day will be carried to the next CBOE business day as described above under Composition of the IndexContract Rebalancing.
Market Disruption and Force Majeure Events Relating to the ETNs
If the Index is not
published on an index business day, or if a market disruption event or a force majeure event (each as defined below) has occurred or is occurring, and such event affects the Index, any futures contract underlying the Index and/or the ability to
hedge the Index, the calculation agent may (but is not required to) make determinations and/or adjustments to the affected Index or method of calculating the affected Index. The determination of the value of an ETN on a valuation date, including its
final valuation date, may be postponed if the calculation agent determines that a market disruption or force majeure event has occurred or is continuing on such valuation date. In no event, however, will a valuation date for the ETNs be postponed by
more than five trading days. If a valuation date is postponed until the fifth trading day following the scheduled valuation date but a market disruption event occurs or is continuing on such day, that day will nevertheless be the valuation date and
the calculation agent will make a good faith estimate in its sole discretion of the value of the Index for such day. All determinations and adjustments to be made by the calculation agent may be made in the calculation agents sole discretion.
See Risk Factors in this pricing supplement for a discussion of certain conflicts of interest which may arise with respect to the calculation agent.
If the calculation agent is prevented from determining an automatic redemption value because a market disruption event occurs or is continuing following the occurrence of an automatic termination event,
the calculation agent may determine the automatic redemption value when the market disruption event has ceased to occur. However, if such market disruption event is continuing on the fifth trading day after the automatic termination date, the
calculation agent may make a good faith estimate in its sole discretion of the value of the Index and will determine the automatic redemption value prior to the close of trading on the fifth trading day. See also If Your ETNs Are Automatically
Redeemed Following the Occurrence of an Automatic Termination Event, You Will Not Benefit From Any Subsequent Decrease in the Level of the Index.
The occurrence or existence of any of the following, as determined by the calculation agent in its sole discretion, will constitute a market disruption event:
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the index sponsor does not publish the level of the Index on any index business day;
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a suspension, absence or material limitation of trading of equity securities then
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PS-29
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constituting 20% or more of the level of the S&P 500
®
on the relevant exchanges (as defined below) for such securities for more than two hours of trading (one hour on any day that is an index roll date for purposes of calculation the VIX Index or the relevant successor index) during, or
during the one hour period preceding the close of, the principal trading session on such relevant exchange;
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a breakdown or failure in the price and trade reporting systems of any relevant exchange for the S&P 500
®
as a result of which the reported trading prices for equity securities then constituting 20% or more of the level of
the S&P 500
®
are materially inaccurate (i) during the one hour preceding the close of the principal
trading session on such relevant exchange or (ii) during any one hour period of trading on such relevant exchange on any day that is an index roll date for purpose of calculating the VIX Index or the relevant successor index;
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a suspension, absence or material limitation of trading on any relevant exchange for the VIX Index (or any relevant successor index) for more than two
hours of trading (one hour on any day that is an index roll date for purposes of calculation the VIX Index or the relevant successor index) during, or during the one hour period preceding the close of, the principal trading session on
such relevant exchange;
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a breakdown or failure in the price and trade reporting systems of the relevant exchange for the VIX Index (or the relevant successor index) as a
result of which the reported trading prices for SPX Options or futures on the VIX Index (or futures on the relevant successor index) during the one hour period preceding, and including, the scheduled time at which the value of SPX Options is
calculated for purposes of the VIX Index (or the relevant successor index) are materially inaccurate;
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a decision to permanently discontinue trading in SPX Options or futures on the VIX Index (or futures on the relevant successor index);
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on any index business day, the occurrence or existence of a lack of, or a material decline in, the liquidity in the market for trading in any futures
contract underlying the Index;
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any event or any condition (including without limitation any event or condition that occurs as a result of the enactment, promulgation, execution,
ratification, interpretation or application of, or any change in or amendment to, any law, rule or regulation by an applicable governmental authority) that results in an illiquid market for trading in any futures contract underlying the Index; and
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the declaration or continuance of a general moratorium in respect of banking activities in any relevant city.
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A force majeure event includes any event or circumstance (including, without limitation, a systems failure, natural or man-made disaster, act of God,
armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance) that the calculation agent determines to be beyond the calculation agents reasonable control and to materially affect the Index, any futures
contract underlying the Index, or the calculation of the VIX Index.
For purposes of determining whether a market disruption event has
occurred:
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a limitation on the hours or number of days of trading will not constitute a market disruption event if it results from an announced change in the
regular business hours of the relevant exchange for the S&P 500
®
or the VIX Index (or the relevant successor
index);
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limitations pursuant to the rules of any relevant exchange similar to NYSE Rule 80B (or any applicable rule or regulation enacted or promulgated by any
other self-regulatory organization or any government agency of scope similar to NYSE Rule 80B as determined by the index sponsor) on trading during significant market fluctuations will constitute a suspension, absence or material limitation of
trading;
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a suspension of trading in an SPX Option or a futures contract on the VIX Index (or futures contract on the relevant successor index) by the relevant
exchange for the VIX Index (or the relevant successor index) by reason of:
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a price change exceeding limits set by such relevant exchange,
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PS-30
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an imbalance of orders relating to such options, or
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a disparity in bid and ask quotes relating to such options
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will, in each such case, constitute a suspension, absence or material limitation of trading on such relevant exchange; and
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a suspension, absence or material limitation of trading on any relevant exchange will not include any time when such relevant exchange is
itself closed for trading under ordinary circumstances.
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Relevant exchange
means,
with respect to the S&P 500
®
, the primary exchange or market of trading for any equity security (or any
combination thereof) then included in the S&P 500
®
or, with respect to the VIX Index or any relevant
successor index, the primary exchange or market for SPX Options or futures on the VIX Index (or futures on the relevant successor index).
An
index business day
is a day on which (1) it is a business day in New York City, and (2) trading is generally conducted on the CBOE.
Disclaimer
Standard & Poors
®
, S&P 500
®
, S&P
®
,
S&P 500
®
Total Return and S&P 500 VIX Short-Term Futures are trademarks of
Standard & Poors Financial Services, LLC (SPFS) and Dow Jones
®
is a registered
trademark of Dow Jones Trademark Holdings LLC (Dow Jones). These trademarks have been licensed for use by S&P Dow Jones Indices LLC (S&P Indices) and its affiliates and sublicensed for certain purposes by Barclays
Bank PLC. CBOE
®
and VIX
®
are trademarks of the Chicago Board Options Exchange, Incorporated (CBOE) and have been licensed for use by S&P Dow Jones Indices LLC and
sublicensed for certain purposes by Barclays Bank PLC.
The ETNs are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices
LLC, Dow Jones, SPFS, their respective affiliates (collectively, S&P Dow Jones Indices) or by CBOE. S&P Dow Jones Indices and CBOE make no representation, condition or warranty, express or implied, to the owners of the ETNs or
any member of the public regarding the advisability of investing in securities generally or in the ETNs or in the ability of either Index to track market performance. S&P Dow Jones Indices and CBOEs only relationship to Barclays is
the licensing of certain trademarks and trade names of S&P Dow Jones Indices, CBOE and the Index which are determined, composed and calculated by S&P Dow Jones Indices without regard to Barclays or the ETNs. S&P Dow Jones Indices has no
obligation to take the needs of Barclays or the owners of the ETNs into consideration in determining, composing or calculating the Index. S&P Dow Jones Indices and CBOE are not responsible for and have not participated in the determination of
the timing of, prices at, or quantities of the ETNs to be issued or in the determination or calculation of the equation by which the ETNs is to be converted into cash. S&P Dow Jones Indices and CBOE have no obligation or liability in connection
with the administration, marketing or trading of the ETNs.
NEITHER S&P DOW JONES INDICES, ITS AFFILIATES NOR THEIR THIRD PARTY
LICENSORS, INCLUDING CBOE, GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN OR ANY COMMUNICATIONS, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATIONS (INCLUDING ELECTRONIC
COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS, INCLUDING CBOE, SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS OR DELAYS THEREIN. S&P DOW JONES
INDICES AND CBOE MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE MARKS, THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF
THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW
PS-31
JONES INDICES, ITS AFFILIATES OR THEIR THIRD PARTY LICENSORS, INCLUDING CBOE, BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO,
LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE.
The index sponsor does not guarantee the accuracy and/or completeness of the Index, any data included therein, or any data from which it is based, and the index sponsor shall have no liability for any
errors, omissions, or interruptions therein.
The index sponsor makes no warranty, express or implied, as to the results to be obtained from
the use of the Index. The index sponsor makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any data included therein. Without
limiting any of the foregoing, in no event shall the index sponsor have liability for any special, punitive, indirect or consequential damages, lost profits, loss of opportunity or other financial loss, even if notified of the possibility of such
damages.
Neither the index sponsor nor any of its affiliates or subsidiaries or any of their respective directors, officers, employees,
representatives, delegates or agents shall have any responsibility to any person (whether as a result of negligence or otherwise) for any determination made or anything done (or omitted to be determined or done) in respect of the Index or
publication of the Index level (or failure to publish such value) and any use to which any person may put the Index or their respective levels. In addition, although the index sponsor reserves the right to make adjustments to correct previously
incorrectly published information, including but not limited to the Index level, the index sponsor is under no obligation to do so and shall have no liability in respect of any errors or omissions.
Nothing in this disclaimer shall exclude or limit liability to the extent such exclusion or limitation is not permitted by law.
VALUATION OF THE ETNs
The market value of the ETNs will be affected by several factors, many of which are beyond our control. Factors that may influence the market value of the ETNs include, but are not limited to, prevailing
market prices and forward volatility levels of the U.S. stock markets, the equity securities included in the S&P
500
®
and the S&P 500
®
, and prevailing market prices of options on the S&P 500
®
, the VIX Index, options on the VIX Index, relevant futures contracts on the VIX Index or any other financial instruments related to the S&P 500
®
and the VIX Index; supply and demand for the ETNs including inventory positions with Barclays Capital Inc. or any
market maker; interest rates; economic, financial, political, regulatory, geographical or judicial events that affect the level of the underlying Index or the market price or forward volatility of the U.S. stock markets, the equity securities
included in the S&P 500
®
, the S&P 500
®
, the VIX Index or the relevant futures contracts on the VIX Index; the perceived creditworthiness of Barclays Bank PLC; supply and demand in the listed and
over-the-counter equity derivative markets; or supply and demand as well as hedging activities in the equity-linked structured product markets. See Risk Factors in this pricing supplement for a discussion of the factors that may
influence the market value of the ETNs prior to maturity.
Intraday Indicative Note Value
An intraday indicative note value meant to approximate the intrinsic economic value of the ETNs will be calculated and published every 15
seconds during each valuation date by NYSE Arca or a successor via the facilities of the Consolidated Tape Association under the ticker symbol XXV.IV. In connection with the ETNs, we use the term intraday indicative note
value to refer to the value, per ETN, on any valuation date as determined based on the following equation:
Intraday Indicative Note
Value = $20 + Intraday Inverse Index Performance Amount + Accrued Interest Accrued Fees;
provided
that if such calculation results in a negative value, the Intraday Indicative Note Value will be $0;
where:
Intraday Inverse Index Performance
Amount = The intraday inverse index performance amount of the ETNs as described in this pricing supplement.
PS-32
Accrued Interest = The accrued interest of the ETNs on the previous calendar day as described in this
pricing supplement.
Accrued Fees = The accrued fees of the ETNs on the previous calendar day as described in this pricing supplement.
The intraday indicative note value calculation will be used to determine whether an automatic termination event has occurred as described in
Specific Terms of the ETNsPayment Upon the Occurrence of an Automatic Termination Event. It is not intended as a price or quotation, or as an offer or solicitation for the purchase, sale, redemption or termination of the ETNs, nor
will it reflect hedging or transaction costs, credit considerations, market liquidity or bid-offer spreads. Furthermore, as the intraday indicative note value is calculated using the accrued fees and the accrued interest on the immediately preceding
calendar day, the intraday indicative note value published at any time during a given trading day will not reflect the interest or fees that may have accrued over the course of such trading day. Published Index levels from S&P Indices may
occasionally be subject to delay or postponement. Any such delays or postponements will affect the current Index level and therefore the intraday indicative note value. The actual trading price of the ETNs may be different from its
intraday indicative note value.
As discussed in Specific Terms of the ETNsPayment Upon Optional Redemption at the Holders
Election, you may, subject to certain restrictions, choose to redeem your ETNs on any optional redemption date during the term of the ETNs. If you redeem your ETNs on a particular optional redemption date, you will receive a cash payment on
such date in an amount equal to the closing indicative note value minus the redemption charge on the applicable valuation date. You must redeem at least 50,000 ETNs at one time in order to exercise your right to redeem your ETNs on any optional
redemption date. The optional redemption feature is intended to induce arbitrageurs to counteract any trading of the ETNs at a discount to the closing indicative note value, though there can be no assurance that arbitrageurs will employ the
redemption feature in this manner.
Short Index Amount
The ETNs are designed to target a multiple of negative one times the performance of the Index over the term of the ETNs, plus accrued interest, less accrued fees. This target is achieved by linking the
payment upon maturity or redemption for each ETN to the value of a notional short position in the Index. However, following market movements, the dollar value per ETN of the notional short exposure is likely to vary.
The Short Index Amount of the ETNs, which is intended to provide an indication of the aggregate dollar value of short
positions in VIX futures underlying the performance of the ETNs, will be calculated and published as soon as reasonably practicable at the end of each valuation date by NYSE Arca or a successor under the ticker symbol XXV.IXNV during the
term of your ETNs.
The Short Index Amount for the ETNs will be calculated according to the following equation:
Short Index Amount = $20
times
the closing level of the Index on such valuation date
divided by
the closing level of the Index on the
initial valuation date.
By calculating the Short Index Amount in this manner, the Short Index Amount also serves to approximate the dollar
participation in the Index performance that will be reflected inversely in the closing value of the ETNs on any given day.
The Short Index
Amount will be published solely for informational purposes. It is not intended to serve as a basis for determining a price or quotation for your ETNs, or as a basis for an offer or solicitation for the purchase, sale, redemption or termination of
your ETNs.
PS-33
Participation
The ETNs are designed to target a multiple of negative one times the performance of the Index over the term of the ETNs, plus accrued interest, less accrued fees. This target is achieved by linking the
payment upon maturity or redemption for each ETN to the value of a notional short position in the Index. However, as the exposure of each ETN to the Index will not be reset during the term of the ETNs, there is likely to be a fluctuating
ratio of (1) the then-current value of the notional exposure per ETN to the performance of the Index
relative to
(2) the then-current intraday indicative note value per ETN. Therefore, the daily or intraday
return on your ETNs will reflect a variable multiple of the daily or intraday return on the inverse performance of the Index that is equal to the ratio of the value of notional exposure to the Index relative to the intraday indicative note value.
See Risk FactorsThe Ratio Between the Value of Your ETNs and the Notional Exposure to the Underlying Index of Each ETN Will Fluctuate During the Term of Your ETNs in this pricing supplement for more information.
The participation of the ETNs, which is intended to approximate the ratio of (1) the value of the notional exposure per ETN to the
performance of the underlying Index
relative to
(2) the value of each ETN, will be calculated and published as soon as reasonably practicable at the end of each valuation date by NYSE Arca or a successor under the ticker symbol
XXV.PTNV during the term of your ETNs. The participation for the ETNs will be calculated according to the following equation:
Participation = Short Index Amount / Closing Indicative Note Value.
By calculating the
participation in this manner, participation also serves to approximate the variable multiple of returns in the Index performance that will be reflected in the value of the ETNs on any given day.
The participation value will be published solely for informational purposes. It is not intended to serve as a basis for determining a price or quotation
for the ETNs, or as a basis for an offer or solicitation for the purchase, sale, redemption or termination of the ETNs.
NYSE Arca Calculations
NYSE Arca is not affiliated with Barclays Bank PLC and does not approve, endorse, review or recommend Barclays Bank PLC or the ETNs.
The closing indicative note value, the intraday indicative note value and other information furnished in connection with the ETNs will be derived from
sources deemed reliable, but NYSE Arca and its suppliers do not guarantee the correctness or completeness of the closing indicative note value, the intraday indicative note value or other information furnished in connection with the ETNs. NYSE ARCA
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY BARCLAYS BANK PLC, BARCLAYS BANK PLCS CUSTOMERS, HOLDERS OF THE ETNS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE CLOSING INDICATIVE NOTE VALUE, THE INTRADAY
INDICATIVE NOTE VALUE OR ANY DATA INCLUDED THEREIN WITH RESPECT TO THE ETNs. NYSE ARCA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE CLOSING
INDICATIVE NOTE VALUE, THE INTRADAY INDICATIVE NOTE VALUE OR ANY DATA INCLUDED THEREIN WITH RESPECT TO THE ETNs.
NYSE Arca and its employees,
subcontractors, agents, suppliers and vendors shall have no liability or responsibility, contingent or otherwise, for any injury or damages, whether caused by the negligence of either NYSE Arca or its employees, subcontractors, agents, suppliers or
vendors or otherwise, arising in connection with the closing indicative note value, the intraday indicative note value or any data included therein with respect to the ETNs, and shall not be liable for any lost profits, losses, punitive, incidental
or consequential damages. NYSE Arca shall not be responsible for or have any liability for any injuries or damages caused by errors, inaccuracies, omissions or any other failure in, or delays or interruptions of, the closing indicative note value,
the intraday indicative note value or any data included therein with respect to the ETNs, from whatever cause. NYSE Arca is not responsible for the selection of or use of the Index or the ETNs, the accuracy and adequacy of the Index or information
used by Barclays Bank PLC and the resultant output thereof.
PS-34
SPECIFIC TERMS OF THE ETNs
In this section, references to holders mean those who own the ETNs registered in their own names, on the books that we or the trustee
maintain for this purpose, and not those who own beneficial interests in the ETNs registered in street name or in the ETNs issued in book-entry form through The Depository Trust Company or another depositary. Owners of beneficial interests in the
ETNs should read the section entitled Description of Debt SecuritiesLegal Ownership; Form of Debt Securities in the accompanying prospectus.
The ETNs are part of a series of debt securities entitled Global Medium-Term Notes, Series A (the
medium-term notes
) that we may issue under the indenture, dated
September 16, 2004, between Barclays Bank PLC and The Bank of New York Mellon, as trustee, from time to time. This pricing supplement summarizes specific financial and other terms that apply to the ETNs. Terms that apply generally to all
medium-term notes are described in Description of Medium-Term Notes and Terms of the Notes in the accompanying prospectus supplement, and terms that apply generally to all index-linked notes are described in Reference
AssetsIndices in the accompanying prospectus supplement. The terms described here (i.e., in this pricing supplement) supplement those described in the accompanying prospectus, prospectus supplement and any related free writing
prospectuses and, if the terms described here are inconsistent with those described in those documents, the terms described here are controlling.
Please note that the information about the price to the public and the proceeds to Barclays Bank PLC on the front cover of this pricing supplement relates only to the initial sale of the ETNs. If you have
purchased the ETNs in a market-making transaction after the initial sale of the ETNs, information about the price and date of sale to you will be provided in a separate confirmation of sale.
We describe the terms of the ETNs in more detail below.
Inception and Issuance
The ETNs were first sold on July 16, 2010 and were first issued on July 21, 2010. We refer to the date on which the ETNs are
first sold as the
inception date
and the date on which the ETNs are first issued as the
issue date
.
Coupon
We will not pay you interest during the term of the ETNs.
Denomination
We will
offer the ETNs in denominations of $20.
Payment at Maturity
If you hold your ETNs to maturity, you will receive a cash payment for each ETN equal to the closing indicative note value on the final valuation date.
The
closing indicative note value
for each ETN on any calendar day will equal (a) the principal amount per ETN
plus
(b) the inverse index performance amount on such calendar day
plus
(c) the accrued interest on such calendar day
minus
(d) the accrued fees on such calendar day;
provided
that if such calculation results in a
negative value, the closing indicative note value will be $0. The closing indicative note value will be published by NYSE Arca on each valuation date under the ticker symbol: XXV.RDNV.
The
inverse index performance amount
for each ETN equaled $0 on the initial valuation date. On any subsequent calendar day until
maturity or redemption of the ETNs, the inverse index performance amount for each ETN will equal the product of (a) negative one
times
(b) the principal amount per ETN
times
(c) the index performance percentage on such
calendar day.
The
index performance percentage
equaled 0% on the initial valuation date. On any subsequent calendar day,
the index performance percentage will equal (a) (i) the closing level of the Index on such calendar day (or, if such a day is not an index business day, the closing level of the Index on the immediately preceding index business day)
divided by
(ii) the closing level of the Index on the initial valuation date
minus
(b) 100%.
The
accrued
interest
for each ETN equaled $0 on the initial valuation date. On any
PS-35
subsequent calendar day until maturity or redemption, the accrued interest per ETN will equal the sum of (a) the accrued interest on the immediately preceding calendar day
plus
(b) the product of (i) the closing indicative note value on the immediately preceding calendar day
times
(ii) the T-Bill rate
divided by
(iii) 360.
The
T-Bill rate
will equal the most recent weekly investment rate for 28-day U.S. Treasury bills effective on the preceding business day in New York City. The weekly investment rate for
28-day U.S. Treasury bills is generally announced by the U.S. Treasury on each Monday; on any Monday that is not a business day in New York City, the rate prevailing on the immediately preceding business day in New York City will apply. The most
recent weekly investment rate for 28-day U.S. Treasury bills is published on Bloomberg under the ticker symbol USB4WIR. The T-Bill rate is expressed as a percentage.
The
accrued fees
on the initial valuation date equaled $0. On each subsequent calendar day until maturity or redemption, the accrued fees per ETN will equal (1) the accrued fees on
the immediately preceding calendar day
plus
(2) the product of (i) the closing indicative note value on the immediately preceding calendar day
times
(ii) the fee rate
divided by
(iii) 365. Because the accrued
fees are calculated and subtracted from the closing indicative note value on a daily basis, the net effect of the accrued fees accumulates over time and is subtracted at the rate of 0.89% per year.
The
fee rate
for the ETNs is 0.89%.
A
valuation date
means each trading day from July 16, 2010 to July 16, 2020, subject to postponement as a result of market disruption events, such postponement not to exceed
five trading days. We refer to July 16, 2010 as the
initial valuation date
and July 16, 2020 as the
final valuation date
.
A
trading day
with respect to the ETNs is a day on which (1) it is a business day in New York City, (2) trading is generally conducted on the NYSE Arca, and (3) trading
is generally conducted on the CBOE, in each case as determined by the calculation agent in its sole discretion.
An
index business
day
is a day on which (1) it is a business day in New York City, and (2) trading is generally conducted on the CBOE.
Maturity Date
If the maturity date stated on the cover of this pricing supplement is not
a business day, the maturity date will be the next following business day. If the first business day before this day,, does not qualify as a valuation date (as described above), then the relevant maturity date will be the first business day
following the final valuation date. The calculation agent may postpone the final valuation dateand therefore the maturity dateif a market disruption event occurs or is continuing on a day that would otherwise be the final valuation date.
In the event that payment at maturity is deferred beyond the stated maturity date, penalty interest will not accrue or be payable with
respect to that deferred payment.
A
business day
means a Monday, Tuesday, Wednesday, Thursday or Friday that is neither a
day on which banking institutions in New York City or London, as applicable, generally are authorized or obligated by law, regulation, or executive order to close.
Payment Upon Optional Redemption At Holders Election
Up to the valuation date
immediately preceding the final valuation date and subject to certain restrictions, you may elect to redeem your ETNs on any optional redemption date during the term of the ETNs, provided that you present at least 50,000 of your ETNs for redemption
or your broker or other financial intermediary (such as a bank or other financial institution not required to register as a broker-dealer to engage in securities transactions) bundles your ETNs for redemption with those of other investors to reach
this minimum. If you choose to redeem your ETNs on an optional redemption date, you will receive a cash payment per ETN on such date equal to the closing indicative note value of your ETNs on the valuation date minus the redemption charge.
Notwithstanding the foregoing, if an automatic termination event, as described under Payment Upon the Occurrence of an Automatic Termination Event, occurs between the time at which you deliver a notice of redemption to us and the
close of business on the applicable valuation date, your
PS-36
notice of redemption will be deemed ineffective and your ETNs will be automatically redeemed on the automatic redemption date as described under Payment Upon the Occurrence of An
Automatic Termination Event.
An
optional redemption date
is the third business day following each valuation date
(other than the final valuation date). The final optional redemption date will be the third business day following the valuation date that is immediately prior to the final valuation date.
The
redemption charge
is a one-time charge imposed upon optional redemption and is equal to 0.05%
times
the closing indicative note value on the applicable valuation date. The
redemption charge is intended to allow us to recoup the brokerage and other transaction costs that we will incur in connection with redeeming the ETNs. The proceeds we receive from the redemption charge may be greater or less than such costs.
Optional Redemption Procedures
You may, subject to the minimum redemption amount described above, elect to redeem your ETNs on any optional redemption date. To redeem your ETNs, you must instruct your broker or other person through
whom you hold your ETNs to take the following steps:
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deliver a notice of redemption, which is attached as Annex A, to us via email by no later than 4:00 p.m., New York City time, on the business day
prior to the applicable valuation date. If we receive your notice by the time specified in the preceding sentence, we will respond by sending you a form of confirmation of redemption, which is attached as Annex B;
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deliver the signed confirmation of redemption to us via facsimile in the specified form by 5:00 p.m., New York City time, on the same day. We or
our affiliate must acknowledge receipt in order for your confirmation to be effective;
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instruct your DTC custodian to book a delivery vs. payment trade with respect to your ETNs on the valuation date at a price equal to the closing
indicative note value minus the redemption charge facing Barclays DTC 5101; and
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cause your DTC custodian to deliver the trade as booked for settlement via DTC at or prior to 10:00 a.m., New York City time, on the applicable
optional redemption date (the third business day following the applicable valuation date).
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Different brokerage firms may
have different deadlines for accepting instructions from their customers. Accordingly, you should consult the brokerage firm through which you own your interest in the ETNs in respect of such deadlines. If we do not receive your notice of redemption
by 4:00 p.m., New York City time, or your confirmation of redemption by 5:00 p.m., New York City time, on the business day prior to the applicable valuation date, your notice will not be effective, and we will not redeem your ETNs on the
applicable optional redemption date. Any redemption instructions for which we (or our affiliate) receive a valid confirmation in accordance with the procedures described above will be irrevocable.
Automatic Termination Event
Your ETNs (in whole only, but not in part) will be redeemed automatically if, on any valuation date prior to or on the final valuation date, the intraday indicative note value is less than or equal to
50.0% of the principal amount per ETN, or $10.00 for each ETN.
Payment Upon the Occurrence of An Automatic Termination
Event
In order to mitigate the risk to the Issuer that the value of the ETNs equals a negative value, we will automatically redeem your
ETNs upon the occurrence of an automatic termination event on the automatic redemption date and will deliver a notice of redemption to DTC in the form attached as Annex C specifying such date. Upon such redemption, you will receive a cash payment
equal to the automatic redemption value for each ETN, which shall be specified in such notice. If a market disruption event occurs and is continuing following the occurrence of an automatic termination event and the calculation agent is prevented
from determining the automatic redemption value, we will deliver a notice to DTC specifying the occurrence of an automatic termination event and will deliver a separate notice to DTC to specify the automatic redemption date and the automatic
redemption value following the resolution of the market disruption event.
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A
automatic termination date
is any valuation date on which an automatic termination
event occurs.
A
automatic redemption date
will be the fifth business day following the automatic termination date;
provided
that if the calculation of the automatic redemption value is postponed as a result of a market disruption event, the automatic redemption date will be the fifth business day after the automatic redemption value is calculated.
The
intraday indicative note value
for each ETN on any valuation date will equal (a) the principal amount per ETN
plus
(b) the intraday inverse index performance amount
plus
(c) the accrued interest on the immediately preceding calendar day
minus
(d) the accrued fees on the immediately preceding calendar day;
provided
that if such calculation results in a negative value, the intraday indicative note value will be $0. The intraday indicative note value will be published by NYSE Arca every 15 seconds on each valuation date under the ticker symbol
XXV.IV. As the intraday indicative note value is calculated using the accrued fees and the accrued interest on the immediately preceding calendar day, the intraday indicative note value published at any time during a given trading day
will not reflect the interest or fees that may have accrued over the course of such trading day.
The
intraday inverse index
performance amount
equals the product of (a) negative one
times
(b) the principal amount per ETN
times
(c) the intraday index performance percentage.
The
intraday index performance percentage
equals (a) (i) the most recently published level of the Index
divided by
(ii) the closing level of the Index on the
initial valuation date
minus
(b) 100%.
The
automatic redemption value
will be equal to the closing indicative
note value on the automatic termination date.
Default Amount on Acceleration
If an event of default occurs and the maturity of the ETNs is accelerated, we will pay the default amount in respect of the principal of the ETNs at
maturity. We describe the default amount below under Default Amount.
For the purpose of determining whether the holders of
our medium-term notes, of which the ETNs are a part, are entitled to take any action under the indenture, we will treat the stated principal amount of each ETN outstanding as the principal amount of that ETN. Although the terms of the ETNs may
differ from those of the other medium-term notes, holders of specified percentages in principal amount of all medium-term notes, together in some cases with other series of our debt securities, will be able to take action affecting all the
medium-term notes, including the ETNs. This action may involve changing some of the terms that apply to the medium-term notes, accelerating the maturity of the medium-term notes after a default or waiving some of our obligations under the indenture.
We discuss these matters in the accompanying prospectus under Description of Debt SecuritiesModification and Waiver and Senior Events of Default; Subordinated Events of Default and Defaults; Limitations of
Remedies.
Default Amount
The default amount for the ETNs on any day will be an amount, determined by the calculation agent in its sole discretion, equal to the cost of having a qualified financial institution, of the kind and
selected as described below, expressly assume all our payment and other obligations with respect to the ETNs as of that day and as if no default or acceleration had occurred, or to undertake other obligations providing substantially equivalent
economic value to you with respect to the ETNs. That cost will equal:
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the lowest amount that a qualified financial institution would charge to effect this assumption or undertaking, plus
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the reasonable expenses, including reasonable attorneys fees, incurred by the holders of the ETNs in preparing any documentation necessary for
this assumption or undertaking.
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During the default quotation period for the ETNs, which we describe below, the holders of
the ETNs and/or we may request a qualified financial institution to provide a quotation of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must notify the other party in writing of the
quotation. The amount referred to in the
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first bullet point above will equal the lowestor, if there is only one, the onlyquotation obtained, and as to which notice is so given, during the default quotation period. With
respect to any quotation, however, the party not obtaining the quotation may object, on reasonable and significant grounds, to the assumption or undertaking by the qualified financial institution providing the quotation and notify the other party in
writing of those grounds within two business days after the last day of the default quotation period, in which case that quotation will be disregarded in determining the default amount.
Default Quotation Period
The default quotation period is the period beginning on the day
the default amount first becomes due and ending on the third business day after that day, unless:
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no quotation of the kind referred to above is obtained, or
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every quotation of that kind obtained is objected to within five business days after the due date as described above.
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If either of these two events occurs, the default quotation period will continue until the third business day after the first business day on which
prompt notice of a quotation is given as described above. If that quotation is objected to as described above within five business days after that first business day, however, the default quotation period will continue as described in the prior
sentence and this sentence.
In any event, if the default quotation period and the subsequent two business day objection period have not ended
before the final valuation date, then the default amount will equal the principal amount of the ETNs.
Qualified Financial Institutions
For the purpose of determining the default amount at any time, a qualified financial institution must be a financial institution organized
under the laws of any jurisdiction in the United States of America or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date of issue and rated either:
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A-1 or higher by Standard & Poors Ratings Services or any successor, or any other comparable rating then used by that rating agency, or
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P-1 or higher by Moodys Investors Service or any successor, or any other comparable rating then used by that rating agency.
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Further Issuances
We may, without your consent, create and issue additional securities with identical terms at any time. We may consolidate the additional ETNs to form a single class with the outstanding ETNs. If there is
substantial demand for the ETNs, we may issue additional ETNs frequently.
Discontinuance or Modification of the Index
If the index sponsor discontinues publication of the Index and any other person or entity publishes an index that the calculation agent
determines is comparable to the Index and the calculation agent approves such index as a successor index, then the calculation agent will determine the value of the Index on the applicable valuation date and the amount payable at maturity or upon
redemption by reference to such successor index.
If the calculation agent determines that the publication of the Index is discontinued and
there is no successor index, or that the closing value of the Index is not available for any reason, on the date on which the value of the Index is required to be determined, the calculation agent will determine the amount payable by a computation
methodology that the calculation agent determines will as closely as reasonably possible replicate the Index.
If the calculation agent
determines that the Index or the method of calculating the Index has been changed at any time in any respect, including whether the change is made by the index sponsor under its existing policies or following a modification of those policies, is due
to the publication of a successor index, or is due to any other reason, then the calculation agent will be permitted (but not required) to make such adjustments to the Index or method of calculating the Index as it believes are appropriate to ensure
that the value of the Index used to determine the amount payable on the maturity date or upon redemption is equitable.
All determinations and
adjustments to be made by the calculation agent may be made in the calculation agents sole discretion. See Risk Factors in this pricing supplement for a discussion of certain conflicts of interest which may arise with respect to
the calculation agent.
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Manner of Payment and Delivery
Any payment on or delivery of the ETNs at maturity will be made to accounts designated by you and approved by us, or at the office of the trustee in New
York City, but only when the ETNs are surrendered to the trustee at that office. We also may make any payment or delivery in accordance with the applicable procedures of the depositary.
Role of Calculation Agent
Barclays Bank PLC currently serves as the calculation agent for the ETNs. We may change the calculation agent after the original issue date of the ETNs
without notice. The calculation agent will, in its sole discretion, make all determinations regarding the value of the ETNs, including at maturity or upon optional redemption or redemption arising from an automatic termination event, market
disruption events, valuation dates, business days, trading days, the closing indicative note value, the accrued interest, the accrued fees, the default amount, the maturity date, the amount payable in respect of your ETNs at maturity, upon optional
redemption and upon the occurrence of an automatic termination event and any other calculations or determinations to be made by the calculation agent as specified herein. Absent manifest error, all determinations of the calculation agent will be
final and binding on you and us, without any liability on the part of the calculation agent. You will not be entitled to any compensation from us for any loss suffered as a result of any of the above determinations by the calculation agent.
The calculation agent reserves the right to make adjustments to correct errors contained in previously published information and to publish
the corrected information, but is under no obligation to do so and shall have no liability in respect of any errors or omissions contained in any subsequent publication.
CLEARANCE AND SETTLEMENT
The Depository Trust Company
(
DTC
) participants that hold the ETNs through DTC on behalf of investors will follow the settlement practices applicable to equity securities in DTCs settlement system with respect to the primary distribution of the ETNs and
secondary market trading between DTC participants.