TVIX Stock – Credit Suisse Fund Liquidated, ETFs Halted as Short-Vol Bets Die
The fallout from the implosion of a vast array of arcane bets against stock-market volatility mounted quickly Tuesday as Credit Suisse Group AG moved to liquidate one investment product and more than a dozen others were halted after their values sunk toward zero.
For the flood of investors — including novice retail types — who had piled into what has come to be known simply as the short-vol trade, it was a devastating blow after they had successfully squeezed profits out of the eerie calm that had overtaken stock markets in recent years. The end to that tranquility came fast, with the benchmark Cboe Volatility Index soaring as much as three-fold in just three days as $3 trillion was wiped from equities amid signs the U.S. economy could be overheating.
Credit Suisse said it will buy back the VelocityShares Daily Inverse VIX Short-Term ETN, which it issued and is known by its trading symbol XIV. The fund’s market value topped $2 billion in late January; it was down 93 percent as of 4 p.m. Tuesday after being halted for most of the morning. The bank said it’s redeeming early because the indicative value on Feb. 5 was equal to or less than 20 percent of the prior day’s closing indicative value.
Buzzwords to Know as the Markets Keep on Bouncing: QuickTake
The ProShares Short VIX Short-Term Futures ETF, a similar short-vol product, opened just before noon after a prolonged halt. It plunged 83 percent, wiping out more than $1 billion in market value. Another dozen exchange-traded products tied to the VIX triggered limit up/limit down rules that stopped trading as the volatility gauge spiked above 50 only to then tumble to 30 as the S&P 500 capped its best day since November 2016.
Horizons ETFs Management Canada Inc. halted trading and temporarily suspended redemptions of its ETF that bets against VIX futures earlier Tuesday. The fund fell 84 percent after it resumed trading and redemptions. Nomura Europe Finance meanwhile announced the early redemption of its Next Notes S&P 500 VIX Short-Term Futures Inverse Daily Excess Return Index ETN, which had 32.4 billion yen ($297 million) in assets.
There was plenty of warning of the risks of letting mom-and-pop investors pile into complex trades they didn’t understand. BlackRock Inc., the world’s biggest ETF provider, has previously criticized complex volatility products and renewed its call on Tuesday for greater regulation of volatility products. Securities regulators had not issued any comments as of noon Tuesday.
Now market participants will try to determine the extent of any lasting impact from a popular trade that turned bad enough to enact enough stress in the market’s plumbing that it shook stock markets from New York to Tokyo.