VelocityShares Credit Suisse 3X Long Crude ETN (UWTIF)

[Smittle]

Reverse Splits Coming for 3X Oil & Nat Gas ETNs

March 9, 2016, 1:24 P.M. ET

A pair of souped-up oil and gas exchange-traded products are so bombed out that the issuer is hitting the reset button on prices.

Credit Suisse announced this week that VelocityShares 3x Long Crude Oil ETN (UWTI) will see a 1-for-10 reverse split, meaning that holders will get one share for every ten that they own.

At the same time, the VelocityShares 3x Long Natural Gas ETN (UGAZ) will see an astounding 1-for-25 reverse split, meaning that holders will get one share for each 25 that they own. Both are effective on March 14.

Splits and reverse splits are a kind of housekeeping. Traders don’t want a fund that’s too pricey, or too cheap. In the cases of hard-hit UWTI and UGAZ, the issue that is that these were getting too cheap.

These ETNs are highly volatile and are marketed to short-term traders. That’s because leveraged products deliver more-than-market price moves each day, meaning that streaks of consecutive one-way price action will amplify the price moves well beyond what they say on the label.

Woe to anyone caught holding UWTI for longer than even a few days — it’s down 32% so far this year, even though crude oil prices have rocketed nearly 40% from their lows last month. UWTI closed Wednesday at just $2.16 a share.

And it would seem that these are pretty popular, even though nobody but short-term, keyed-in trader types should be using them. TD Ameritrade released a survey last month that showed UTWI was one of the Top 10 stocks traded by millennials in 2015.

Credit Suisse points out in its news release that the total market value of the shares outstanding will not be affected by the splits, except in the case of fractional shares, which will be swapped for cash.

While spits are generally a wash economically, it’s these fractional shares that can lead to unplanned gains (or losses) and, thus, unplanned tax events. This blogger covered the phenomenon for Barron’s a few years back.

It only took six months for these splits to materialize after the last round, announced back in early September.

ETNs

http://blogs.barrons.com/focusonfunds/2016/03/09/reverse-splits-coming-for-3x-oil-nat-gas-etns/?mod=yahoobarrons&ru=yahoo