Credit Suisse said on Tuesday it would redeem early one of the most popular exchange-traded notes following Monday's steep decline in financial instruments that bet against wild downward swings in the markets.
The VelocityShares Daily Inverse VIX Short-Term ETN will stop trading by Feb. 20, the Swiss bank said in a statement. The redemption of the note will likely leave investors with a fraction of their initial investment.
The prospectus for the ETN had made clear a fall of 80 percent or more in a day, such as experienced on Monday, could result in its closure and its removal from the market.
"Upon such an event, your ETNs would be subject to acceleration and you will likely lose all or a substantial portion of your investment," the prospectus says.
"The long term expected value of your ETNs is zero. If you hold your ETNs as a long term investment, it is likely that you will lose all or a substantial portion of your investment."
Separately on Tuesday, Nomura Securities said it will redeem its Tokyo Stock Exchange-listed S&P 500 Vix Inverse ETN after a sharp equity sell-off since late last week triggered a massive loss in the product.
The Nomura notes will be redeemed at 1,144 yen, a cut of 96.1 percent from its closing price on Monday, and will be delisted from the Tokyo Stock Exchange on Feb. 19, Nomura said.
Credit Suisse had said earlier it faced no material impact itself from the fall in the VelocityShares ETN, in which it has a 32 percent stake.
A source familiar with the matter said the bank's exposure to the product, which Credit Suisse launched in 2010 and of which it has around 4.8 million units, was fully hedged.
Trading in the product and two similar instruments was halted amid speculation that they could be liquidated after a spike in the VIX volatility index -- commonly known as the "fear gauge" -- amid a rout in U.S. stock markets.
Such ETPs seek to provide inverse exposure to VIX short-term futures and, when that measure spikes, the investment loses value, at which time ETP issuers could liquidate the shares.
The VelocityShares Daily Inverse VIX Short-Term ETN sank 84 percent in after-hours trading, while the ProShares Short VIX Short-Term Futures ETF fell nearly 79 percent as investors questioned if they could survive the volatility.
"Credit Suisse confirms that it has experienced no trading losses from Velocity Shares Daily Inverse VIX Short Term ETNs (“XIV”) due December 4, 2030," the Swiss bank said.
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