Barclays announced today that it has indefinitely suspended any further sales from inventory and any further issuances of the iPath Pure Beta Crude Oil ETNs (OIL) due April 18, 2041, and the iPath Series B S&P 500 VIX Short-Term Futures ETNs (VXX) due January 23, 2048, in each case effective as of the open of trading on March 14.
Barclays said in a statement that this suspension is being imposed “because Barclays does not currently have sufficient issuance capacity to support further sales from inventory and any further issuances of the ETNs. These actions are not the result of the crisis in Ukraine or any issue with the market dynamics in the underlying index components.”
“The ‘Issuance Capacity’ thing is a bit of a get out of jail free card, so we can interpret that as ‘we no longer feel comfortable managing the implied risk of this product,’” said Dave Nadig, CIO and director of research at ETF Trends and ETF Database.
“Remember, an ETN doesn’t ‘own’ anything — it’s just a promise to pay a pattern of returns from a bank,” Nadig continued. “In this case, with, say VXX, Barclays owes the ETN holders the pattern of returns of a daily-rebalancing front-second month VIX futures portfolio. It’s not complicated to run, but that doesn’t mean it’s riskless.”
With the markets moving as quickly as they have been — particularly volatility and oil — Nadig suspects a risk manager simply made the call that they no longer wanted to have someone trying to offset these promised returns by owning a lot of VIX and oil futures on the bank’s books.
Barclays said in the statement that it expects to reopen sales and issuances of the ETNs as soon as it can accommodate additional capacity for future issuances.
“It’s similar to what Credit Suissed did several times,” Nadig said, referring to the firm soft closing TVIX a handful of times before shutting the doors to investors for good, causing TVIX to trade at massive premiums before wiping out investors when the firm changed its mind, causing the price to fall back down to earth. “It’s notable in this case because VXX in particular is so large.”
The firm said in a statement that it believes that the limitations on issuance and sale may cause an imbalance of supply and demand in the secondary market for the ETNs, which may cause the ETNs to trade at a premium or discount in relation to their indicative value. Therefore, any purchase of the ETNs in the secondary market may be at a purchase price significantly different from their indicative value.
Daily redemptions at the option of holders of the ETNs will not be affected by this suspension.
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