Credit Suisse announced its intention to delist the popular Exchange Traded Note VelocityShares Daily 2x VIX (TVIX). Alongside 8 other publicly listed ETN’s, TVIX will no longer be traded on the NASDAQ effective of July 12th while new issuances suspended on the 3rd of July. If you aren’t completely familiar with ETN’s we will breakdown what they are and what happens when they delist from a public exchange such as the NASDAQ.
Table of Contents 1. What is an ETN 2. What does delisting mean for TVIX investors? 3. What current holders can do before and after the ETN delists?
What is an ETN?
An ETN such as TVIX is issued notes (bonds) from a financial institution that promise to pay the principle + the return on a certain index over an agreed period of time. The “due date” is when the financial institution will pay this principle+return amount to the note holder.
So what does this mean for investors currently holding TVIX?
Short Answer: History tells us low levels of liquidity in the OTC market is the biggest threat.
In comparison to ETF’s which pay a cash value to the owner on the effective delisting date. ETN’s generally move over to an Over-The-Counter (OTC) market. An OTC market trades financial securities without a brokerage or third party. This leaves only two parties entering a transaction to buy and sell. An OTC market is notorious for lower liquidity levels, meaning it will make it a lot harder to find a buyer willing to buy the security at the price you are willing to sell at. OTC’s are less regulated and transparency around the current “market driven” price is non-existent. This creates a larger transparency issue for both the buyer and the seller.
If we go back to 2016, Credit Suisse’s VelocityShares 3x Long Crude Oil ETN (UWTI) was one of the more infamous delisting cases in ETN history. At the time, the ETN was one of the most heavily traded of its type. Just two weeks after the announcement from Credit Suisse, a Thomas Reuter fund researcher estimated a $675 million sell off. This left many investors who were not experienced in ETN’s or OTC to become stranded on a boat with no paddle.
Taking the ETN over to OTC proves a challenge most investors would not want to take. Experienced traders may look to sell TVIX at a greater premium in 6-12 months time on the OTC. If we are talking risk-reward, taking the ETN into OTC will provide you absolutely no guarantee of finding a seller. Let alone selling at a marked up price to flip a profit.
What tools are in place for investors in TVIX?
As we do not offer financial advice only market commentary, I have left a statement by Credit Suisse in regards to what steps investors can take before and after the ETN delists. The full press release entails further details as to what investors can do before a delisting of an ETN.
Subject to the minimum redemption amount and other conditions, investors can continue to exercise their early redemption right with respect to the ETNs prior to, and following, the ETNs’ delisting, pursuant to the terms of the ETNs as described in the Pricing Supplement. If investors wish to exercise their early redemption right, they and their broker must follow the procedures set forth in the Pricing Supplement, which can be accessed on the Securities and Exchange Commission website at www.sec.gov
Credit Suisse Press Release 22/06/2020
The Link for more information is here
The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.