Credit Suisse Will Liquidate The XIV Short-Term Volatility ETN

The dramatic sell-off in U.S. stocks in the past couple of days has created some unprecedented situations for certain funds. Credit Suisse Group AG (ADR) CS said Tuesday it will be liquidating one of its most popular volatility trading instruments after Monday’s wild session.

Acceleration Event

Credit Suisse said an “acceleration event” triggered the liquidation of its Credit Suisse AG – VelocityShares Daily Inverse VIX Short Term ETN XIV. The XIV is designed to deliver the inverse daily return of the CBOE Volatility Index (VIX). On Monday, the intraday value of the XIV dropped to 20 percent of its previous day’s closing value during the mid-day market crash.

One of the primary concerns about these types of funds is what the impact could be for large hedge funds who own the XIV and other inverse volatility investments if they're unable to easily exit their positions during times of extreme volatility, especially during the illiquid after-hours sessions. Another obvious problem is what would become of the XIV is the VIX were to gain 100 percent or more in a single day.

The End Of The XIV

The XIV was halted Tuesday, and Credit Suisse subsequently issued a press release saying it will be delivering an irrevocable call notice to The Depository Trust Company for the XIV on Feb. 15. It also named Feb. 21 as the acceleration date for the XIV.

“On the acceleration date, investors will receive a cash payment per ETN in an amount equal to the closing indicative value of XIV on the accelerated valuation date,” the statement says. “The last day of trading for XIV is expected to be February 20, 2018.”

Impact On Credit Suisse

On Monday, Credit Suisse said the XIV’s drop is “reflective of today’s market volatility” and “there is no material impact to Credit Suisse.”

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

Relates Links:

What Is The VIX, And What Does It Do?

BOE Volatility Index Closes Up 85.6% At 32.11 As Stocks Dip

Image credit: Cayambe (Own work) [CC BY-SA 4.0], via Wikimedia Commons