TVIX Resumes Creations On Limited Basis

March 23, 2012

TVIX is back in the creations game, sort of.

Credit Suisse, the sponsor behind the VelocityShares Daily 2X VIX Short-Term ETN (NYSEArca: TVIX), said it would resume issuing shares of TVIX today “on a limited basis” after having halted creations on Feb. 22 as asset growth burst through what the company at the time called “internal limits.”

TVIX’s assets had nearly quadrupled this year to almost $650 million in a pace so intense that Credit Suisse’s risk-control desk had to pull on the brakes and halt creations. Industry sources said it appeared the bank wasn’t fully comfortable with how quickly it was ramping up complex hedges. Since then, no new shares of the ETN have been issued, and TVIX has some $587.6 million in assets now.

The halt had some immediate effects on competing strategies. Investors flocked to the double-exposure ProShares Ultra VIX Short-Term Futures ETF (NYSEArca: UVXY) the very next day, and continued to pour assets into the fund in the weeks that followed. UVXY has, in fact, attracted $291 million in new assets since Feb. 22, a significant inflow considering the fund had under $30 million in assets as of Feb. 20.

TVIX’s price began plunging yesterday morning, and ended the day almost a third lower, at $10.20 a share. Still, that price was about 30 percent above its net asset value—a clear suggestion of how sought-after the ETN remained after creations had been halted. UVXY ended the day 2.2 percent higher, at 18.17 a share.

“At present, the ETNs are trading at a premium to their indicative value,” Credit Suisse said in a press release.

Volatility products related to VIX futures have grown in popularity since the market meltdown of 2008-2009. They are regarded as portfolio insurance because they spike in value when stocks are in full retreat.

TVIX serves up twice the daily performance of the S&P 500 VIX Short-Term Futures Index, which consists of VIX futures contracts and is designed to measure the implied volatility of the S&P 500 Index at various points in the volatility curve, according to VelocityShares’ website.

In the last month, TVIX’s price has dropped nearly 40 percent, a function of declining market volatility that is being reflected in the price of VIX futures.

Short-term VIX futures on the CBOE are now just above $15, according to information posted on the CBOE’s website. To put that number in perspective, VIX futures were up around $50 last summer when Standard & Poor’s downgraded U.S. debt, and were around $80 when financial markets collapsed in 2008-2009.

That market action also can be seen in UVXY’s performance. Despite inflows of $291 million since creations on TVIX were suspended, the fund today has only some $212 million in assets. Its share price has slid even more dramatically than TVIX in the last month, dropping some 50 percent.

“Beginning March 23, Credit Suisse may from time to time issue the ETNs into inventory of its affiliates to make the ETNs available for lending at or about rates that prevailed prior to the temporary suspension of issuances of the ETNs,” Credit Suisse added.

While VelocityShares markets the ETNs that bear its name, Credit Suisse issues them. That means that any ETNs it issues, including TVIX, are based on the full faith and credit of Credit Suisse.


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