Credit Suisse Announces Effective End of XIV, Popular Short Volatility ETN

02/06/18 10:16 AM EST
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)

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