Credit Suisse Will Liquidate The XIV Short-Term Volatility ETN


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Credit Suisse said it would liquidate the VelocityShares note starting February 21.

Betting against volatility has become a popular money-making strategy in the years since the financial crisis, with banks and other financial companies offering a plethora of "short-vol" products. As such, the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) - an exchange-traded note issued by Credit Suisse Group AG (NYSE:CS) that mirrors the inverse performance of VIX - was down 14.3% at 99 when the stock market closed, and plunged more than 80% in after-hours trading. The VIX jumped from a value of 17.31 on Friday to 37.32 on Monday, a more than 115 percent surge in one day. BlackRock Inc. has been calling for regulation that would clearly spell out the dangers associated with such inverse and leveraged exchange-traded products. As the sponsor of the VelocityShares note, Credit Suisse had the right to wind down and liquidate the note if its value changed more than 20 percent in a day.

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Credit Suisse - which is the largest holder of the ETN - issued a statement saying the bank has not suffered any trading losses due to the XIV implosion. The institutional investor held 291,439 shares of the investment bankers and brokers and service company at the end of 2017Q3, valued at $28.43 million, down from 350,585 at the end of the previous reported quarter. The XIV is created to deliver the inverse daily return of the CBOE Volatility Index (VIX).

Credit Suisse stock traded lower by 0.9 percent Tuesday morning and is now down 6.1 percent in the past week.

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