Credit Suisse Announces Effective End of XIV, Popular Short Volatility ETN
February 06 2018 - 10:31AM
Dow Jones News
By Gunjan Banerji
Credit Suisse announced an "event acceleration" of its
VelocityShares Daily Inverse VIX Short Term Exchange-Traded Note,
effectively announcing the liquidation of a product that allows
investors to bet on muted moves in the stock market.
The bank said the acceleration date of the note, called XIV, is
expected to be Feb. 21, which is when investors will receive a cash
payment equal to the closing value that day.
That means those still holding XIV will get cash on Feb. 21 for
the value of XIV on that date. That could be far less than the
level investors bought XIV at. The ETN closed at $99 a share Monday
and then its "closing indicative value" dropped to $4.22, according
to the note's website.
Credit Suisse said Monday that because the "intraday indicative
value" of XIV on Monday was equal to or less than 20% of the prior
day's closing value, a so-called acceleration event occurred. The
product's prospectus has provisions that stated it can be
liquidated in such scenarios.
Futures contracts tracking the Cboe Volatility Index, or VIX,
soared Monday, dealing a blow to the product, which makes a bearish
wager on volatility.
XIV was halted in trading earlier Tuesday.
The New York Stock Exchange announced a trading halt for another
popular exchange-traded product: the ProShares Short VIX Short-Term
Futures ETF, called SXVY. ProShares, the ETF's provider, announced
Tuesday that it expects SVXY will open for trading.
The ETF's performance on Monday "was consistent with its
objective and reflected the changes in the level of its underlying
index," ProShares said in its statement.
The ETF, as well as other short-volatility products, also
suffered massive losses Monday as the VIX posted its biggest
one-day jump on record.
The so-called short volatility trade, which has become wildly
popular in recent years, backfired in recent days. In early trading
Tuesday, the VIX spiked above 50, a level it hasn't closed at since
2009. It is a dramatic reversal from the calm throughout global
markets in 2017.
--Asjylyn Loder and Alexander Osipovich contributed to this
article.
(END) Dow Jones Newswires
February 06, 2018 10:16 ET (15:16 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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