After it shocked, frustrated and delighted investors for a decade, Credit Suisse Group AG is pulling the plug on the world’s biggest volatility exchange-traded product. Don’t expect it to go quietly.

The VelocityShares Daily 2x VIX Short Term ETN, ticker TVIX, has already flashed signs of becoming untethered from its underlying index following the Swiss bank’s bombshell announcement this week.

The plan to delist and suspend new shares is sending shock waves through the volatility-trading community -- and is even set to impact Wall Street’s infamous fear gauge.

It sets up a fittingly messy end for an invention that has long been a magnet for drama.

“Using TVIX was like taking the wheel of a Ferrari,” said Jim Carroll, portfolio manager at Toroso Advisors. “With a skilled driver, it could deliver outstanding performance. And a bad driver could wind up wrapped around a tree.”

The move is part of a “continuing effort to monitor and manage” exchange-traded offerings, Credit Suisse said in a statement Monday. The delisting will become effective on July 12, and the ETN may continue to trade over-the-counter.

The risks now, as ever, stem from both TVIX’s structure and size.

The ETN is levered, meaning it amplifies returns. It aims to move about twice as much as a basket of near-term futures on the Cboe Volatility Index, a gauge of expected price swings for the S&P 500 known as the VIX Index, and it has been phenomenally successful at attracting cash.

At the height of the coronavirus crisis, its assets swelled to more than $6 billion as stocks plunged and volatility soared. More than $1 billion remains, meaning TVIX is still a whale in the market for VIX futures contracts.

Hedging the note constitutes about half of the daily rebalancing between front-month and second-month VIX futures, according to BNP Paribas SA. Goldman Sachs Group Inc. reckons it has exposure equivalent to one-third of all open interest in the contracts.

As money flees the note in advance of the delisting, those futures will likely be sold. Because it’s such a massive player that means there could be downward pressure not only on the price of futures but on the volatility of the VIX itself, strategists say.

“The VIX ETP space will definitely take a hit until other products inevitably fill the void,” said Pat Hennessy, head trader at IPS Strategic Capital. “It remains to be seen how much of the AUM will actually migrate from TVIX” to similar products, he said.

Notorious ETP
Introduced in 2010, TVIX grew to become the largest product simulating a long position in the VIX, which typically moves inversely to stocks.

Largely shunned by professional traders, it ushered in a boom for retail speculation, with moms and pops able to bet on turbulence or enduring calm in U.S. equities -- with frequently ugly results.

When the bank suspended creations in 2012, TVIX surged to nearly a 100% premium to its net asset value. The price crashed when share issuance resumed, burning investors who bought in at an inflated level and setting off a firestorm of criticism.

“Volatility trading in general has a host of complex factors driving PnL that we suspect many retail investors do not fully understand, therefore making them unsuitable to trade positions of any kind,” said Ed Tom of Macro Risk Advisors.

Yet investors wanted to profit from market storms, or at least to cushion the rest of their portfolio, and TVIX provided their chance.

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