Credit Suisse, back on the 22nd June, decided to delist several leveraged ETNs. In particular, the delisting of Velocity Shares 3x Long Natural Gas ETN (UGAZ) and UGAZ’s inverse VelocityShares 3x Inverse Natural Gas ETN (DGAZ) is gaining traction. Does an Exchange Trade Note sound foreign to you? If so, we provide our viewers with a digestible explanation here. DGAZ and UGAZ;s delisting disappointed many natural gas investors who were making healthy profits off the current decline in oil production and recovering demand. However, many investors holding DGAZ and UGAZ are wondering what their options are. If you want to understand everything you need to know for the delisting of TVIX, an ETN that posted 2000% in a March, click here.
Table of contents 1. When and why is Credit Suisse delisting DGAZ and UGAZ 2. How can you sell your shares in DGAZ and UGAZ? 3. Future alternatives for DGAZ and UGAZ investors.
When and why are DGAZ and UGAZ delisting
Credit Suisse is deciding to delist a range of leveraged instruments, DGAZ and UGAZ included, to de-risk their funds under management and to better suit future growth plans. Hence why Credit Suisse is moving away from some incredibly volatile commodity derivatives. Unfortunately, that is all the information available on the ‘why’ of delisting. However, it seems the main reason for the delisting is that the extreme levels of volatility might have created hedging issues for Credit Suisse.
Investors can trade shares in DGAZ and UGAZ up until the 10th July. However, on the 12th July the natural gas ETN’s will be delisted from the NYSE Arca. Once delisted, investors can no longer trade DGAZ and UGAZ shares on an exchange, the primary source of liquidity. Consequently, Investors will have to look to sell their shares in the Over-The-Counter (OTC) market. If you would like to learn more about the OTC market, we have provided a simple explanation here.
Also, Credit Suisse suspended further issuances of DGAZ and UGAZ on the 22nd of June. In turn, the difficulty at which you can sell your shares in the secondary market is increasing as the ETN’s approach maturity.
What does this mean for DGAZ and UGAZ investors?
Before maturity, investors can trade DGAZ and UGAZ like those under the NYSE Arca exchange. However, the retirement of the DGAZ and UGAZ, to a greater extent DGAZ, because it is a bearish ETN, causes the trading volumes to decline rapidly. Thus, while you can sell your holdings within the primary source of liquidity, treat the current conditions as a supporting act to the OTC market.
However, after the 12th of July, DGAZ and UGAZ, investors can only sell their securities in the OTC market. Over counter trades involve the buyer and the seller, which means no broker to handle your trades. Because there is no real selling and buying structure, it becomes increasingly difficult to find a willing buyer for your desired price. Thus, the low liquidity levels, fire-sale type transaction, and management demanded should trigger alarms bells in the mind of investors to seriously think about bag holding shares past the delisting.
What are the alternatives for UGAZ and DGAZ investors?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
If you own shares in UGAZ and DGAZ, ensuring you put in place a risk-management exit plan should be priority number one. If you felt confident trading in the natural gas industry then either the United States Gas Fund (UNG) or the United States 12 Month Natural Gas Fund (UNL) ETF could be a possible alternative. (opinion not advice) However, we do not offer financial advice and only market commentary. Hence, it is up to you to decide how you handle your exit in DGAZ and UGAZ, and whether or not you seek alternative investments in UNG or UNL.
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
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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.
Written by Patrick McLoughlin, Senior Manager of YIG.