(Adds futures market data, VelocityShares statement, details on
By Trevor Hunnicutt
NEW YORK Dec 8 VelocityShares said on Thursday
it was launching two new exchange-traded notes as an
"alternative" to a pair of popular products used to bet on oil
prices that are being delisted this week.
The new notes - VelocityShares 3x Long Crude Oil ETN (UWT)
and VelocityShares 3x Inverse Crude Oil ETN (DWT) - were being
issued by Citigroup.
In a statement, Janus Capital Group Inc unit
VelocityShares said the notes would "continue to service"
investors who want to use trading tools to get exposure to oil.
The unexpected issuance of new notes comes as Credit
Suisse's $617 million VelocityShares 3x Long Crude Oil
ETN (UWTI) is poised to become the largest-ever note to
be delisted from U.S. exchanges after trading Thursday. A
smaller related ETN, the $210 million VelocityShares 3x Inverse
Crude Oil ETN, is also delisting.
The notes promise to magnify or deliver the opposite of oil
price gains, allowing investors to book huge profits when oil
prices rise or fall. UWTI prices soared last week, for instance,
when the Organization of the Petroleum Exporting Countries
(OPEC) agreed to curb crude production.
Credit Suisse said in a Nov. 16 statement it would delist
the ETN to better align "its product suite with its broader
strategic growth plans."
But the notes are delisting without a new redemption option
for investors who retain them, raising the prospect that
investors who failed to find buyers for their notes could be
stuck in the products, which do not officially expire until
Investors hold $22 billion of U.S. ETNs which, like debt,
constitute a pledge by an issuer. Payouts are based on the
performance of the underlying asset, but the notes do not "hold"
those assets, unlike ETFs to which they are often compared.
Note-issuing banks will still often take positions in the
oil market to hedge their exposure. And oil futures markets were
unusually active on Thursday as investors fled the notes ahead
of their delisting.
The prompt spread for U.S. crude futures, or the spread
between the January to February contract CLc1-CLc2, rallied as
traders liquidated the UWTI and DWTI contracts, tightening from
$1.17 a barrel to as much as 98 cents.
(Reporting by Trevor Hunnicutt; Additional reporting by
Catherine Ngai; Editing by Andrew Hay)