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Investors file lawsuit after losing money in XIV Meltdown



The problem with investing is that you can lose money – and sometimes a lot of it.

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Investors in VelocityShare's Daily Inverse VIX Short Term Exchange-Traded Note (XIV) learned this the hard way. The product exploded and has since been liquidated, causing investors major losses. Now she is suing Credit Suisse Group (CS), the issuer of the Federal Reserve, and Janus Index & Calculation Services, the publisher of the note's indicative value and final mark of note.

XIV was one of 1

9 exchange-traded products that tracked the Cboe Volatility Index, better known as the VIX. XIV was not an ETF but an exchange-traded note (ETN). ETNs do not hold underlying securities such as stocks or bonds. They are unsecured debt issued by a bank that promises to pay the performance of an index. XIV promised to pay for the reversal of the VIX. If the VIX went down, XIV would go up and vice versa. This was done by buying and shorting VIX futures.

XIV has become popular because it returned 2.200% over the past five years, according to Eric Balchunas, chief ETF analyst for Bloomberg Intelligence. On February 5, the VIX jumped 100%. Reports say the price of the note was 72.59 at 16 o'clock. ET and fell to $ 4.22 at 5:10 pm, during which time the indicative value was not updated every 15 seconds, as was typical. Janus Index & Calculation Services was responsible for estimating the value of the grade. Because the banknote lost more than 90% of its value, Credit Suisse decided the next day to close the ETN to prevent further losses.

"Issuers are building up a cushion when they lose 70% of their value" It's all done, "said Peter Shea, partner at law firm K & L Gates." In this case, the VIX shot up so high that it was up The investors sued and said they had suffered damage because they had relied on the integrity of the market. The plaintiff did not have the bonds at the prices they paid or not bought at all if they had known that market prices had been inflated artificially and wrongly by the defendant's misleading statements. "

Credit Suisse told IBD:" The publicly available prospectus has the risks of investing in XIV which only intended for sophisticated institutional clients, accurately and completely disclosed.Credit Suisse has not committed any misleading behavior investors in terms of XIV value or Ur matter of February 5, 2018, decline in XIV price.

Janus was not available for comment.

"Sophisticated Product"

"People will complain because they will say th they did not know they would be liquidated and their losses withheld would. In other words, they did not read the prospectus, "Shea said," It's a very ingenious product, and many people do not have the basics to understand it or have simplified disclosure to learn the basics, so many retail investors should stay away from such products. "[19659004]" There is no denying that it was painful, "said Bloomberg's Balchunas," but unless there is some kind of manipulation that we have not seen 'It does not seem like a big case, because everything was published in the prospectus and the ETN was following what it was pursuing. VIX futures had as good a day as the ETN was bad. Since you are inversing the futures, you have fallen as much as they have risen.

Another exchange-traded product also suffered huge losses on February 5 but was able to remain open. [19659010] Changing targets

The ProShares Short VIX Short Term Futures ETF (SVXY) also fell on this day at 90 On February 27, the Fund changed the inverse performance to half the inverse (-0.5x) of the S & P 500 VIX Short-Term Futures Index for a single day, when the fund reaches the new target in one day If the index falls by 1%, the fund should increase before fees by about 0.5%, and on a day when the index rises by 1%, the fund should fall by about 0.5%.

Its sister fund, the ProShares Ultra VIX Short-Term Futures ETF (UVXY), now wants one and a half times (1.5x) the performance of the S & P 500 VIX Short Term Futures Index for a single day when the fund reaches its new target, on a day when the index rises by 1%, the fund should rise by about 1.5%.

The changes This was done without informing the shareholders because, as ProShares says on their website, they were convinced that the funds and their shareholders had the best interest in implementing this change without delay. ProShares declined to comment.

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