New Firm VelocityShares Plans 6 VIX ETNs

November 22, 2010

A startup ETN firm formed by one of iPath's founders, looks to break into crowding field of VIX-related ETNs.

VelocityShares, a startup exchange-traded note firm c0-founded by Greg King, who helped launch the iPath ETNs at Barclays, filed papers with the Securities and Exchange Commission to offer six Credit Suisse-backed VIX-related ETNs.

VelocityShares, which plans to be a “white label” issuer of ETNs partnering with different banks to bring products to market, said in the filing the securities include:

  • VelocityShares Daily Inverse VIX Short-Term ETN (NYSEArca: XIV)
  • VelocityShares Daily Inverse VIX Medium-Term ETN (NYSEArca: ZIV)
  • VelocityShares VIX Short-Term ETN (NYSEArca: VIIX)
  • VelocityShares VIX Medium-Term ETN (NYSEArca: VIIZ)
  • VelocityShares Daily 2x VIX Short-Term ETN (NYSEArca: TVIX)
  • VelocityShares Daily 2X VIX Medium-Term ETN (NYSEArca: TVIZ)


The new paperwork with the SEC follows on the surprising success of the iPath family of VIX-linked ETNs. iPath launched ETNs linked to short- (VXX) and midterm VIX (VXZ) futures in 2009. Those products have gathered more than $2.5 billion in assets, making them among the fastest-growing new ETPs on the market.

A third iPath noted—the iPath Inverse S&P 500 VIX Short-Term Futures ETN (NYSEArca: XXV)—launched in July, and has $54 million in assets. iPath is the largest ETN family, with more than $5 billion in assets. Citigroup recently launched a volatility linked product, the C-Tracks Citi Volatility Index ETN (NYSEArca: CVOL).

Designed For Traders

Traders use VIX products to hedge their portfolios against volatility in the market. Importantly, none of these VIX ETNs tracks the performance of the actual VIX Index, formally known as the CBOE Volatility Index. Rather, they track the performance of futures linked to that index.

The short-term products track futures dated out one or two months; the midterm products track futures dated between four and seven months out.  As a general rule, futures linked to the VIX index tend to be less volatile than the VIX itself.

As with all leveraged and inverse products, the double exposure and single-inverse exposure VelocityShares products won’t deliver twice or the simple inverse over long periods of time. They are designed to deliver leverage on a daily basis. Due to compounding, their long-term returns may vary from that multiple significantly.

For the VelocityShares, that may not matter. VelocityShares set up shop a little over a year ago with the goal of developing ETPs for the trading community. It isn’t looking for long-term investors in its products.

In the filing, the company stressed that its new products are designed for more sophisticated players in the market.

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