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volatility

Credit Suisse Pulls Plug On XIV – The Black Swan Has Landed

It's over folks.

It’s over folks.

As predicted on Monday evening when XIV crashed 80% AH…

XIV

XIV is toast. Here are the official headlines:

  • CREDIT SUISSE SEES IRREVOCABLE CALL NOTICE ON VELOCITY SHARES
  • CREDIT SUISSE REPORTS EVENT ACCELERATION OF XIV ETNS

Full announcement is embedded below. Here are the top holders:

  • Deutsche Bank with a 3.8% stake
  • Morgan Stanley: 2.6%
  • Citadel: 2.6%
  • Flow Traders U.S. LLC: 1.9%
  • Two Sigma: 1.2%
  • CTC LLC: 1.1%
  • Keel Point: 0.6%
  • Jane Street Group: 0.4%

So that’s the “acceleration event” everyone has been warning about for months and months, and it finally came calling.

“Since the intraday indicative value of XIV on February 5 was equal to or less than 20% of prior days’s closing indicative value, an acceleration event has occurred,” CS says, adding that they “expect to deliver an irrevocable call notice with respect to the event acceleration of XIV to The Depository Trust Company by no later than Feb. 15, 2018.”

There you go. The black swan landed. And all thanks to something that everyone said could never happen:

VIX2

You’re reminded that on Monday evening, Nomura announced that the Next Notes S&P500 VIX Short-Term Futures Inverse Daily Excess Return Index ETN will be redeemed, after one of the conditions was triggered due to movements in the underlying index.

Here’s Macro Risk Advisors’ Pravit Chintawongvanich on XIV:

Importantly, from a market risk standpoint, XIV and SVXY have already covered 96% of their risk and essentially no longer have any market impact on VIX futures. This will not trigger any significant buying of VIX futures, as that happened yesterday. This essentially means that XIV holders will receive a cash payment of NAV.

Obviously that isn’t great, because NAV is like $4.

As for SVXY, they’ve issued a statement saying they expect it “to be open for trading today and plan to continue to manage the fund as usual.” The performance “reflected changes in the level of its underlying index”, the company dryly notes.

What can we say to the XIV crowd except this: you should have read the prospectus…

Sensitivity of the ETNs to large changes in the market price of the underlying futures contracts Because the Inverse ETNs and 2x Long ETNs are linked to the daily performance of the applicable underlying Index and include either inverse or leveraged exposure, changes in the market price of the underlying futures will have a greater likelihood of causing such ETNs to be worth zero than if such ETNs were not linked to the inverse or leveraged return of the applicable underlying Index. In particular, any significant increase in the market price of the underlying futures on any Index Business Day will result in a significant decrease in the Closing Indicative Value and Intraday Indicative Value of the Inverse ETNs, and any significant decrease in the market price of the underlying futures on any Index Business Day will result in a significant decrease in the Closing Indicative Value and Intraday Indicative Value of the 2x Long ETNs. 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 if we choose to exercise our right to effect an Event Acceleration of the ETNs. If the price of the underlying futures contracts decreases by more than 40% in a day, it is extremely likely that the 2x Long 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. If the price of the underlying futures contracts decreases by more than 80% in a day, it is extremely likely that the Long 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 if we choose to exercise our right to effect an Event Acceleration of the ETNs.

Full statement from Credit Suisse

 

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2 comments on “Credit Suisse Pulls Plug On XIV – The Black Swan Has Landed

  1. Jamal James

    Quoting Taleb: Eat like a chicken, shit like an elephant.
    That was a big one.
    On the bright side, it’s a good time to look for a new day job.

  2. “subject to postponements due to certain events”
    that’s funny! Like “If can pay us back” would be another event?
    Well in that case, we just gave you a wedgy.

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