Credit Suisse Gives Delisted ETN Investors An Out

December 12, 2016

Some investors may not have seen the post-market close announcement from Credit Suisse and therefore had an unnecessarily uneasy weekend, contemplating the fact that they were possibly stuck holding shares of the VelocityShares 3x Long Crude Oil ETN (UWTI) and the VelocityShares 3x Inverse Crude Oil ETN (DWTI).

The unprecedented closure of the immensely successful exchange-traded notes caught many investors by surprise, and others did not understand the implications of a product delisting to trade over-the-counter. The ETNs had nearly $600 million in assets still at the close of trading on Friday, Dec. 9, after seeing their last day of trading on Thursday, Dec. 8.

And with no arbitrage from a market maker and the lack of liquidity in the OTC environment, wide trading spreads were already opening up. Being stuck in such a product without liquidity to exit one’s position is particularly alarming given the volatile nature of leveraged and inverse vehicles.

Significant Decrease

However, Credit Suisse said late Friday in a press release that it was reducing the size of redemption blocks of the ETN from 25,000 notes to just 500.

That means instead of needing to cobble together a group of 25,000 shares of either ETN to redeem it directly from the issuer, a broker just needs to bundle 500 shares to redeem them and get the indicative value minus transaction costs. 

The move makes it much easier for investors to exit the shares without taking too big of a hit. Investors will be charged a 0.05% early redemption fee when they redeem shares; further, investors need to go through a broker, according to the release, and cannot implement this action themselves.

Although unexpected, the closure of the ETNs, despite their profitability, does make sense if Credit Suisse is trying to clean up its balance sheets and reduce liabilities by removing the counterparty risk associated with DWTI and UWTI from its ledger.

 

Contact Heather Bell at [email protected].

 

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