February 6, 2018 / 4:30 AM / a year ago

Nomura to redeem volatility-short ETN as markets tumble

TOKYO, Feb 6 (Reuters) - Nomura Europe Finance said on Tuesday that it will redeem its Tokyo Stock Exchange-listed S&P 500 Vix Inverse ETN, after a sharp equity sell-off since late last week triggered a massive jump in the U.S. stock volatility index.

The Exchange Traded Notes are designed to track the opposite of the daily return of S&P Vix short-term futures index .

In essence investors who hold the notes are taking a short position on market volatility, which is a winning strategy most of the time as long as markets remain calm.

Many investors had used such a strategy to enhance return amid low interest rates around the world.

But the sell-off in Wall Street shares since last week on rising inflation and interest rate worries pushed the Cboe Volatility index to a 2-1/2-year high of 37.32 on Monday from Friday close of 17.31.

That caused an unprecedented 96 percent plunge in the S&P Vix short-term futures inverse index, which Nomura’s ETN is tracking.

Nomura said it will redeem the notes early, based on the their provision that they will be redeemed when the inverse volatility index falls more than 80 percent.

The Vix Inverse ETN was one of most popular notes among Nomura’s 19 ETNs, having net assets of more than 32 billion yen ($294.80 million) before the latest plunge.

The ETN were untraded with gluts of sell orders at the day’s lowest limit of 24,400 yen, down 17 percent from Monday close of 29,400 yen. ($1 = 108.5500 yen) (Reporting by Hideyuki Sano; Editing by Kim Coghill)

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