Credit Suisse to redeem volatility note

The value of the XIV exchange-traded note plunged more than 80% in late trading Monday
FEB 06, 2018
Credit Suisse Group is buying back one of its exchange-traded notes after volatility soared, triggering losses for the holders who had bet on muted market swings. The notes mirror the inverse performance of the Cboe volatility index, which on Monday soared by the most on record, and will be called on Feb. 21, the bank said in a statement Tuesday. The VelocityShares Daily Inverse VIX Short-Term ETN, known by its trading symbol XIV, dropped 14% during the session on Monday and its net asset value plunged more than 80% in late trading, according to data compiled by Bloomberg. The bank has not suffered any trading losses related to the exchange-traded note, the company said in an earlier statement Tuesday. The Swiss lender was the biggest holder on the note, with 32% at the end of the third quarter. The ETN had a market value of about $2.2 billion at its record high on Jan. 11. 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. 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. BlackRock Inc. has been calling for regulation that would clearly spell out the dangers associated with such inverse and leveraged exchange-traded products. Credit Suisse, the issuer of the note, said it's redeeming early because the indicative value on Feb. 5 was equal to or less than 20% of the prior day's closing indicative value. The surge in volatility has already claimed one victim: Nomura Europe Finance 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. Credit Suisse shares fell as much as 8.5% in Tuesday's trading in Zurich and were 4.3% lower as of 2:26 p.m.

Latest News

Texas man says SEC and fund could make him pay twice
Texas man says SEC and fund could make him pay twice

A $141M judgment and a federal asset freeze collide over one shrinking pool

Osaic executives Kristy Britt and Greg Cornick to leave
Osaic executives Kristy Britt and Greg Cornick to leave

The firm's CFO and EVP of Wealth Management Solutions are the latest executives to exit the broker-dealer.

Estate planning becomes a client retention issue for financial advisors, survey finds
Estate planning becomes a client retention issue for financial advisors, survey finds

Clients are saying they would consider switching advisors if another professional offered estate planning services, according to a new Trust & Will survey.

Candidly adds AI agents for Trump Accounts, workplace benefits
Candidly adds AI agents for Trump Accounts, workplace benefits

CEO Laurel Taylor says the fintech's composable AI stack helps workers optimize dollars across Trump Accounts, 529s, 401(k)s, and other employee benefits.

BMO adds three advisors in Dallas amid Y'all Street wealth boom
BMO adds three advisors in Dallas amid Y'all Street wealth boom

The bank has swiped three private banking veterans from BNY as the city climbs the ranks of America's fastest-growing wealth hubs.

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income

SPONSORED Why direct indexing stopped being optional

Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.