As I wrote previous year, "An attraction for traders is that, because of the quirks of "rolling" old futures contracts into new ones, inverse notes tend to make money even if the actual VIX doesn't go anywhere".
SVXY, which had $770.2 million in assets under management at the end of 2017, provides short exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration, according to ProShares. But exchange-traded notes and funds that give investors a quick and easy way of entering the trade have also been criticized for their risks. The last day of trading for XIV is expected to be February 20, 2018. To prevent massive selling from pushing the value of the fund into negative territory, the issuers outline so-called acceleration events that would give them the power to liquidate the fund. "If the price of the underlying futures contracts increases by more than 80% in a day, it is extremely likely that the Inverse ETNs will depreciate to an Intraday Indicative Value or Closing Indicative Value equal to or less than 20% of the prior day's Closing Indicative Value and will be subject to acceleration".
The most-baffling thing about XIV was why it was trading at $99 at the close. Thus, Credit Suisse will liquidate trading of XIV on Feb 21.
A short time later, the bank said it will take the XIV security out of the market by buying them back from investors next week. Credit Suisse, the market-maker for the XIVs, remained hedged in the products in the intervening years, had held them on behalf of clients, and hadn't housed them on its books, according to a person familiar with the matter.
Investors can either sell the ETN on the open market before the suspension, or wait for Credit Suisse to redeem the notes. The bank is triggering this liquidation because the product during these last three volatile days could not keep up with the scenario it was supposed to track: a calm market.
ETN accelerations, while uncommon, have happened in the past.
Meanwhile, ProShares will continue to operate SVXY, which is structured as an ETF.
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