Amid Volatility Surge, Credit Suisse Terminates VelocityShares ETN

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Investors can either sell the ETNs on the open market before that, or wait for Credit Suisse to redeem the notes.

Credit Suisse (CS -1.6%) will end trading in its inverse volatility ETN, the VelocityShares Daily Inverse VIX Short-Term (NASDAQ:XIV), after an 84% collapse that halted trading in the notes.

That all changed in a hurry Monday when the Dow Jones Industrial Average sank as much as 1,597 points on its way to the worst percentage loss since August 2011.

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.

As Benzinga reported Tuesday, XIV was halted Tuesday, and Credit Suisse subsequently issued a press release saying it will be delivering an irrevocable call notice to The Depository Trust Company for the XIV on February 15. Finally, Bogart Wealth LLC purchased a new stake in shares of Credit Suisse AG - VelocityShares Daily Inverse VIX Short Term ETN in the second quarter valued at $304,000.

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The long-awaited market decline from record highs sent people to options for protection, raising prices for those derivatives, and eroding the value of XIV and other investments that effectively bet on tranquil conditions.

Shorting volatility, or betting on calm stock market conditions, had been one of the most successful trading strategies until Monday, when a massive selloff in USA stocks derailed some popular short volatility exchange traded products (ETPs). Similar to index-based ETFs, ETNs also track some sort of index as part of their investment strategy.

Last year, traders argued that the VIX remained depressed because realized volatility in US equities has diminished and economic fundamentals remain supportive. Consequently, investors are exposed to the credit risk or the possibility the underwriting bank.

Credit Suisse's VelocityShares Exchange-Traded Note (XIV) lost more than 80pc of its value following Monday's sell-off.

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