I contacted a local Credit Suisse office to ask if they have any information that can be disclosed on when they might start re-issuing. They do not have any updates on the status; however the following Bloomberg article dated yesterday was provided. For some reason the article has not yet hit the national wire so here it is below.
--------------------------------------------------------
BN
Credit Suisse VIX Note Premium Hits Record After Halt:
Mar 20 2012 12:42:43
By Alexis Xydias
March 20 (Bloomberg) --A security managed by Credit Suisse
Group AG that tracks u.S. equity volatility has jumped to a
record over its underlying assets, pushed up after the bank
stopped issuing shares.
The VelocityShares Daily 2x VIX Short-Term ETN, or TVIX,
closed yesterday 62 percent above its so-called indicative
value, which is tied to the Chicago Board Options Exchange
Volatility Index, according to data compiled by Bloomberg.
Credit Suisse suspended creation of stock on Feb. 21 after
traders hedging a rally in the Standard & Poor's 500 Index
spurred a quadrupling in the security's market capitalization.
Gains that pushed u.S. equities to the highest level in
almost four years caused demand to surge for funds and notes
that track the VIX, which acts as a hedge against the S&P 500
because it moves in the opposite direction about 85 percent of
the time. Credit Suisse's attempt to limit supply may be causing
the ETN to break loose from its reported value as short sellers
rush to cover bets the note will fall, according to Armstrong
Investment Managers and Stutland Equities LLC.
"You're playing with fire here," Mariana Bush, the
Washington-based head of exchange-traded tracking-products
research for Wells Fargo Advisors LLC, said yesterday in a phone
interview. Her firm manages about $1.1 trillion in client
assets. "It is starting to trade like a closed-end fund where
the creation and redemption process is no longer working."
Five-Year Low
The VIX, derived from S&P 500 options prices, dropped to an
almost five-year low of 14.47 last week as shares extended the
best annual start since 1998 and the size of daily price changes
in the S&P 500 decreased to an average of 0.46 percent from 1.04
percent in 2011. The Credit Suisse note was designed to pay
investors twice the return of the S&P 500 VIX Short-Term Futures
Index, which has declined at more than double the rate of the
TVIX since Feb. 21.
Demand to protect against losses in equities pushed up the
number of shares available for trading to records last week in
four of the five largest exchange-traded funds and notes that
track u.S. stock volatility, data compiled by Bloomberg show.
For the iPath S&P 500 VIX Short-Term Futures ETN, the biggest,
outstanding stock reached 100.1 million on March 16, up 51
percent since March 9 and more than fourfold since Dec. 30.
ETNs are unsecured bank debt backed by their issuer's
credit, unlike exchange-traded funds that hold assets. Banks
create and redeem shares of ETNs based on the level of demand
for the securities. That demand usually doesn't affect the price
since the ETNs track the performance of an index.
Temporary Suspension
Switzerland's second-largest bank "temporarily" suspended
sales of stock in the TVIX after its market value climbed to
near $700 million in February from $155 million at the start of
the year. The capitalization has since dropped to about $610
million even as daily trading rose 420 percent from last year's
level, Bloomberg data show.
After jumping to a premium of 16 percent in the first two
days following Credit Suisse's announcement, the spread grew to
more than twice that last week, a possible consequence of shortsellers
rushing to close their bets, said Fred Bethon of XChange
Financial Access LLC. In a short sale, a trader borrows
then sells a security, hoping to repurchase it later at a lower
price and profit from the difference.
"The reason why it's looking so rich has to do with the
short squeeze that's out there right now and the fact that if
you cannot do any creations, then there's basically an
artificial scarcity," Bethon, managing director for strategy
and execution at X-Change in New York, said in a telephone
interview yesterday. Short sellers are "going to have to make
good on their margin calls and get bought in," he said.
Sold Short
The number of shares sold short in the Credit Suisse note
was 4 million at the end February, up from less than 1.5 million
at the end of 2011, according to Bloomberg data. The ETN's price
lost 83 percent from Oct. 3 to Feb. 29.
Gaps in prices are normally closed by arbitragers, who can
apply to buy new shares from issuers at the indicative value
plus issuing costs. They then sell the same shares for more,
pocketing the difference and helping tighten the spread.
The suspension of new stock means that's not happening,
said Rohit Bhatia at Barclays Plc in New York.
"Arbitragers cannot take advantage of this premium,"
Bhatia said in a phone interview on March 16. "It becomes a
different dynamic altogether." The spread also reflects demand
for the product while some investors may be betting it gets
larger, he added.
Internal Limits
Halting issuance was "due to internal limits on the size
of the ETNs," Credit Suisse said last month. Holders may
continue to redeem their notes with Credit Suisse or trade them,
the bank said. Katherine Herring, a spokeswoman for Credit
Suisse in New York, said the bank declined to comment on the
premium or whether it may decide to start issuance again.
Shares outstanding surged to 40.7 million on Feb. 17 from
150,000 in November 2010, when the ETN was introduced, bolstered
by the S&P 500's best January gain since 1997, data compiled by
Bloomberg show.
The TVIX slipped 13 percent to $14.81 a share between Feb.
22 and last week. The indicative value declined 36 percent to
$10.88 in the period, according to Bloomberg data. During that
time, the note's underlying gauge, the S&P 500 VIX Short-Term
Futures Index, lost 19 percent.
The note traded at an average premium of 0.8 percent to
indicative value between Nov. 25 and Feb. 21, Bloomberg data
show. The ProShares Ultra VIX Short-Term Futures, which promises
the same returns, closed last week at a discount of 0.1 percent.
'Life of Its Own'
"While it is an open-ended note, market mechanisms will
force it to trade very close to NAV / " said London-based Patrick
Armstrong, who helps oversee $350 million including VIX-linked
products at Armstrong Investment Managers, in a phone interview.
"The disruption has caused the premium to have a life of its
own."
When Barclays suspended issuance in its iPath Dow Jones-UBS
Natural Gas Total Return Sub-Index ETN in August 2009, the note
traded 15 percent higher than its net value a month later.
The VIX rose 32 percent last year, its biggest annual gain
since 2008, as stocks around the world slid. The MSCI AllCountry
World Index fell 9.4 percent on concern the European
debt crisis was spreading and global economic growth was
slowing. The U.S. vOlatility gauge reached an eight-week high on
Oct. 3, when the S&P 500 touched a one-year low. That day, the
TVIX reached $100.90, the most since November 2010.
VIX, VStoxx
The VIX has tumbled 36 percent this year through yesterday
as U.S. economic reports beat expectations and the European
Central Bank lent about $1.3 trillion at below-market rates to
keep credit markets from freezing. The volatility gauge rose 1.6
percent to 15.28 as of 12:40 p.m. in New York today, while
Europe's VStoxx Index, a measure of Euro Stoxx 50 Index options
prices, gained 8.5 percent to 19.91 after falling to its lowest
level since May 2008 yesterday.
Credit Suisse may be prompted to resume issuance if the
notes' market capitalization drops, sJid Rocky Fishman, equity
derivatives strategist at Deutsche Bank AG in New York.
"There is no catalyst for that premium to go away if there
is no new issuance," Fishman said in an interview. "If they do
turn on creation, it should flip the premium back to almost zero
immediately."
