VelocityShares 3x Inverse Crude Oil ETN (DWT)

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Uncertainty Looms as Triple-Leveraged Oil Bets Go Dark
Two popular ETNs that deliver triple returns on the price of crude oil are being delisted

By Chris Dieterich • Dec 8, 2016 12:30 pm ET

Thursday is the final day of ordinary trading for a pair of popular exchange-traded products that deliver turbo-charged returns on the price of crude oil.

Investors holding slivers of nearly $1 billion in notes after the closing bell could face wildly divergent prices in the over-the-counter market — if they can trade at all.

Unlike an outright closure, where investors receive their money back at the value of the underlying assets, the VelocityShares 3x Long Crude Oil ETN, ticker UWTI, and the VelocityShares 3x Inverse Crude Oil ETN, ticker DWTI, will drop off the NYSE Arca exchange and into a purgatory-like grey market, where no public price quotes are available. Credit Suisse Group, the issuer, said will also suspend new issuance of ETN shares, according to a statement, another potential complication for trading the notes over the counter.

The Credit Suisse statement, released in November, said it was delisting the notes “to better [align] its product suite with its broader strategic growth plans.” A spokesman for the bank declined to comment beyond the statement. A spokesman for Janus Capital Group, which owns VelocityShares, declined to comment.

The ETNs were designed to deliver triple the daily price move of futures on crude and have become popular plays among day traders looking to profit from quick jolts in oil prices.

Recent flow data suggest that not all owners got the message that the ETNs are moving over the counter. The bullish oil ETN, UWTI, has seen $586 million in outflows over the past week, according to data from XTF, but ended Wednesday with $700 million in notes still outstanding. The outstanding notes on the bearish ETN, ticker DWTI, totaled $233 million at the close on Wednesday, after investors pulled $36 million over the past week.


In fact, some traders have been busy buying the ETNs ahead of the delisting. Trading volume in the UWTI ETN hit a record 63 million shares a week ago, the day that OPEC struck a long-sought agreement to reduce production. More shares of UWTI changed hands that day than all but three stocks on the S&P 500, according to data from Bats Global Markets.

Investors with at least 25,000 shares, a position of around $600,000, can redeem their notes with the bank for cash. But smaller investors who have flocked to the notes over the past several years could face significant headaches when they try to unload their stakes after Thursday’s close.

Some traders say they’re dismayed by what they said was a lack of communication about the looming deadline.

Simon Tate, 53, a former investment banker in London, said that he uses leveraged ETNs in his retirement portfolio. Mr. Tate said that he learned of the delisting only after being contacted by a Wall Street Journal reporter last week and quickly unloaded his position.

“I didn’t have a bloody clue,” Mr. Tate said. “I didn’t get any email or anything else and might have had a whole lot of money stuck in a product with no idea how to get out — it’s actually outrageous.”

ETNs are debt instruments issued by banks that promise the performance of an index in exchange for a fee. Credit Suisse, the issuer of the leveraged oil-tracking ETNs, retains an option to wind down the products, though it hasn’t said it will do so.

http://blogs.wsj.com/moneybeat/2016/12/08/uncertainty-looms-as-triple-leveraged-oil-bets-go-dark/