Credit Suisse Says It Saw No Losses From VIX-Linked Securities

Instant View: US stock slide drags S&P down 5 percent from January record

Instant View: US stock slide drags S&P down 5 percent from January record

Nicole Sharp, a spokeswoman for the note's sponsor, Credit Suisse AG's VelocityShares, said in an emailed statement that "The XIV ETN activity is reflective of today's market volatility". Credit Suisse Group AG made a decision to liquidate one: the VelocityShares Daily Inverse VIX Short-Term ETN, which used Cboe's VIX futures contracts to make its wagers.

But that all changed Monday when the Dow Jones industrial average lost more than 1,100 points and was down more than 1,500 points at one point.

An ETP meant to mirror moves in the front of the VIX's futures curve plunged more than 75% in after-hours trading following an 80% spike in contracts that comprise its underlying index during the trading day, potentially putting in play triggers that would enable the fund's owners to liquidate it to avoid losses. The two products were short volatility, a bet against equity turbulence that traders have been piling into for years. The bank's exposure to the product, which Credit Suisse launched in 2010 and of which it has around 4.8 million units, was fully hedged, according to a source familiar with the matter, meaning they made other trades to eliminate their own risk.

More $3 trillion (£2.15 trillion) has poured into so-called inverse exchange traded notes (ETNs) linked to the Vix, or fear index, in recent years, as markets ascended and volatility all but vanished.

Credit Suisse's European-listed shares closed down 6 per cent during a broader sell-off. Those notes will be redeemed at a cut of 96.1 per cent from its closing price on Monday, and will be delisted from the Tokyo Stock Exchange on February 19, Nomura said.

Last year, traders argued that the VIX remained depressed because realized volatility in USA equities has diminished and economic fundamentals remain supportive.

"The long term expected value of your ETNs is zero". Multiple exchange-traded securities that are also supposed to be bets on calm markets were halted Tuesday after losing the majority of their value overnight.

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