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UPDATE 2-Credit Suisse lowers hurdle to redeem delisted oil ETNs
December 9, 2016 / 10:35 PM / a year ago

UPDATE 2-Credit Suisse lowers hurdle to redeem delisted oil ETNs

(Adds data on market for the notes, VelocityShares comment)

By Trevor Hunnicutt

NEW YORK, Dec 9 (Reuters) - Credit Suisse on Friday said it would lower investors’ hurdle to redeeming two popular exchange-traded notes, used to bet on the price of oil, after it delisted the products in a surprise move this week.

VelocityShares 3x Long Crude Oil ETN became the largest product of its kind delisted from U.S. exchanges after Thursday trading. VelocityShares 3x Inverse Crude Oil ETN was also delisted.

The move comes as the bank’s earlier decision not to offer a new option for investors to redeem the oil-trading notes raised the prospect that some investors who failed to find buyers would not be able to trade the notes for what they are worth - or at all.

Investors who managed to sell the notes in an “over-the-counter” netherworld on Friday, after the delisting, did so at discounts to their estimated value that in some cases exceeded 10 percent, Thomson Reuters data showed.

Nearly 3.4 million notes changed hands Friday.

Credit Suisse AG, in a statement, said investors can now use an early redemption option if they have 500 of the notes, down from the 25,000 previously required. The company declined to comment further.

Investors with fewer than 500 of the notes will still ostensibly have to find a buyer elsewhere. The notes are not set to officially expire until 2032.

The ETNs promise to magnify or deliver the opposite of oil price gains, allowing investors to book huge profits when oil prices rise or fall but also creating the potential for massive losses.

Despite their complexity, the notes are widely used by individual retail investors.

Not withstanding the delisting, there were $745 million of the notes still circulating on Thursday, when they were pulled off the exchange.

Investors hold $22 billion of U.S. ETNs, which 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.

VelocityShares, a service provider for the notes and unit of Janus Capital Group Inc, said late Thursday it was launching two new ETNs as an alternative to the existing product. The new notes are backed by Citigroup. VelocityShares declined to comment further. (Reporting by Trevor Hunnicutt; Editing by Jonathan Oatis)

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