Barclays VIX ETN Turmoil Looks Linked to $591 Million Note Error
Comment of the Day

March 28 2022

Commentary by Eoin Treacy

Barclays VIX ETN Turmoil Looks Linked to $591 Million Note Error

This article from Bloomberg may be of interest to subscribers. Here is a section:

While the issuance halt initially triggered outsize moves for VXX -- including a 45% jump then reversal in a single session -- the ETN has been calmer as volatility across U.S. stocks retreated, helping prevent a potentially vicious short squeeze in the product. 

All the same, since new cash can’t be added to either note the distortions can be significant. VXX closed at a record 24% premium on Friday, according to data compiled by Bloomberg. OIL has swung between a premium and discount amid major moves in the crude market in the past two weeks. It closed Friday at a 1.1% discount to assets.  

VXX gained 2.4% in early trading as of 9:02 a.m. in New York. OIL was 3.2% lower.

“This is a rare case of an exchange-traded product issuer dropping the ball and mismanaging their products,” said Todd Rosenbluth, head of research at ETF Trends. “Although it is no more likely to occur again this is another red flag for trading ETNs and not ETFs.”

Eoin Treacy's view

ETNs were created to offer exposure to portions of the market that are difficult for ETFs to access. This comes with additional counterparty risk. The times when ETN products go awry is generally when there is significant credit market volatility like we have seen recently.

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