iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
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Credit Suisse to Stop Trading $XIV on February 20th, 2018 — But Don’t Worry — They Didn’t Lose Any Money

In case you were up all night worrying about Credit Suisse and their exposure to volatility, do not worry, for they are completely hedged and haven’t lost any money in their FUCKING DEATH TRAP of an ETN XIV — which is slated for execution from the natural world on 2/20/18.

Wall Street experts now warn to read those pesky little prospectuses before making swing trades in these bastard products. Because, next thing you know, you lean into one of these things for a quick soiree into volatility at $100 and you wake up with this motherfucker at zero.

Any god damned questions? Read the fine print, son, otherwise you’re nuts might be mashed into paste.

Via CNBC:

Credit Suisse said it will end trading in a security that traders said was exaggerating movements in volatility futures markets and even the overall stock market.

The last day of trading for VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) will be Feb. 20, according to an announcement from Credit Suisse. It is triggering this liquidation because the product could not keep up with the scenario it was supposed to track: a calm market.

The XIV security, which had fallen roughly 85 percent in after-hours trade, had been halted pending this news early Tuesday. The security is supposed to give the opposite return of the Cboe Volatility index (VIX), the market’s widely followed turbulence gauge.

Multiple exchange-traded securities that are also supposed to be bets on calm markets were also halted Tuesday morning after losing the majority of their value overnight.

Credit Suisse said late Monday ET that the XIV’s plunge would have no “material impact” on the Swiss bank itself, though a source familiar with the news told CNBC that the investment bank was considering redemption of the ETN but had yet to make a final decision.

Shares of Credit Suisse slumped nearly 4 percent on Tuesday morning amid the wider sell-off in equity markets.

In case you missed the prospectus for XIV, just prior to picking up some shares at your discount house brokerage account before the bell, here’s the print you would’ve loved to have read.

As explained in the VelocityShares prospectus, the company can elect to “accelerate” any of their ETNs, liquidating them early.

“If the price of the underlying futures contracts increases by more than 80 percent 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 percent of the prior day’s Closing Indicative Value and will be subject to acceleration,” read the company prospectus. “If an Acceleration Event occurs at any time with respect to any series of the ETNs, we will have the right, and under certain circumstances as described herein the obligation, to accelerate all of the outstanding ETNs of such series.”

See folks, you have only yourselves to blame. The product worked perfectly fine. There was nothing awry with its behavior. You should expect to lose 100% of your investment between the after-hours session of 4:05pm to 4:45pm, as underwriters cover their OTC volatility contracts, effectively ‘terminating’ your investment. If, by chance, you happen to be long XIV, it’s tough luck — being at the wrong place at the wrong time. After all, Credit Suisse did warn you it could happen. Sure, perhaps they might’ve asked Nasdaq to halt trading last night, in order to prevent others from buying ‘dips’ in the after-hours session — but that was probably just an honest mistake and you can’t really hold it against Credit Suisse — since it’s all there in the prospectus. I swear, it’s all there — every single bad thing that has happened today was there, even the notion that a product trading at $100 could open up the next trading day at zero because it had been terminated, naturally.

Oh, one more thing before I go, UVXY is -31% today and volatility is dropping fast. The otherwise of that UVXY trade would’ve been XIV. The irony here, as the Dow moves from -700 to +400 for the session, is that had XIV chicanery not taken place last night, it would’ve been a winner today.

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12 comments

  1. acehood

    So many flavors, Fly, and you choose salt.

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  2. sarcrilege

    If CS is completely hedged, who is on the other side? It cannot be all retail, could it?

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  3. sarcrilege

    btw, equities are green and heading back up to ATH. Where the fuck is @showtime to chime in on this ‘contagion’? Crickets….

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  4. flychecker

    $40k victim… Bought the thing for the first time on Friday, no joke… Was going to sell it today regardless. Funny thing is that I’d been trading uvxy for the past month.

    Will that thing blow up now? If VIX gets halved in a day, wouldn’t that happen?

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  5. dragun

    obscure? one of largest traded instruments .. media sucks

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  6. busted

    I lost 100k after hours last night on a 2k share trade… it took 30 minutes

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  7. tradingnymph

    Well Bulls…You had both Kuroda and Bullard trying to hold you guys up in the last 12 hours. No one else scheduled to speak. AMZN is at pre earnings levels again. FWIW, China is going on holiday soon for Chinese New Years…looks like the cocaine fields of Central Bankers are weakening…along with China Money.

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  8. roundwego

    Time to reload shorts. Stfr

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  9. paradox

    I have read this and that, but I still don’t understand the after hours events. XIV closed at 99 and then goes to 10? I don’t understand how the prospectus covers that? Someone screwed someone in a big way and I don’t think this will actually be over for years, because there are going to be some huge class action cases and I wouldn’t be surprised to see some government agencies step in. This wasn’t just the people in the XIV that got screwed, the whole market has been getting wagged by this tail for ages.

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    • roundwego

      When you short risk in a market that is been pumped by central banks for nine years. You are a pavlovian dog and completely conditioned to ignore reality. No fudamentals changed since 2008. As Charles smith puts it a nine yr dead cat bounce.

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  10. echeshier

    Yeah, this is bullshit. I’ve read all the prospectuses and was well aware of the risks. Yesterday after hours I noticed XIV was tanking, thought it had gone haywire and bought a few hundred shares at $68. Surely they would stop trading if they were going to terminate the fund right? WTF!?!?!

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  11. roundwego

    you knew it was a falling knife.

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