Asset Management Fixed Income and Debt
March 26, 2012
Behind the Sharp Sell-Off of Credit Suisse’s VIX-Based ETN
The mysterious meltdown of VelocityShares, the exchange-traded note Credit Suisse issued to track volatility, underscores the risk of using leverage in this burgeoning new market.
By Andrew Barber
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In advance of a potentially market-moving public announcement, a popular volatility-focused exchange-traded note collapsed in trading last Thursday, raising a host of questions about who was selling and why. The Securities and Exchange Commission is investigating the situation, according to Bloomberg.
Relentless selling pressure drove shares of VelocityShares Daily 2x VIX Short-Term ETN (TVIX) from an open of $14.78 to a close of $10.20 — an 8.5 standard deviation swing — with three-times daily average volume. The sell-off occurred just hours before Credit Suisse, the ETN’s issuer, announced that new share creation would resume “on a limited basis” after weeks of suspension. The timing of the trades and announcement brings into question whether the bank had acted in response to the market action or if sellers had anticipated the announcement.....