Credit Suisse Announces Effective End of Short Volatility ETN -- Update
February 06 2018 - 8:38PM
Dow Jones News
By Gunjan Banerji
Credit Suisse Group AG 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. That is when investors still holding it
will receive a cash payment equal to that day's closing value.
That could be far less than the level at which investors bought
XIV. 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 on Tuesday but
resumed and settled at $7.35, FactSet data show.
The New York Stock Exchange announced a trading halt for another
popular exchange-traded product: the ProShares Short VIX Short-Term
Futures ETF, called SVXY. It resumed trading and closed at $12.24,
down 83%.
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 had
huge 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, before closing at 29.98. It is a dramatic reversal from the
calm throughout global markets in 2017.
--Asjylyn Loder and Alexander Osipovich contributed to this
article.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
(END) Dow Jones Newswires
February 06, 2018 20:23 ET (01:23 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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