Short Volatility ETN to Liquidate -- WSJ

02/07/18 02:47 AM EST
By Gunjan Banerji 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 7, 2018).

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 07, 2018 02:47 ET (07:47 GMT)

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