How is an XIV lawsuit even possible?

Discussion in 'Wall St. News' started by prc117f, Feb 8, 2018.

  1. mt2rules


    It states in the prospectus that this product was not meant to last. Even if this event hadn't happened the note would have matured in 2030 and the product would have been dissolved. Here is an excerpt from the prospectus:

    "The ETNs are riskier than securities that have intermediate or long-term investment objectives, and may not be suitable for investors who plan to hold them for longer than one day. Accordingly, the ETNs should be purchased only by knowledgeable investors who understand the potential consequences of investing in volatility indices and of seeking inverse or leveraged investment results, as applicable. Investors should actively and frequently monitor their investments in the ETNs, even intra-day.

    As explained in “Risk Factors” in this pricing supplement, because of the way in which the underlying Indices are calculated, the amount payable at maturity or upon redemption or acceleration is likely to be less than the amount of your initial investment in the ETNs, and you are likely to lose part or all of your initial investment. In almost any potential scenario the Closing Indicative Value (as defined below) of your ETNs is likely to be close to zero after 20 years and we do not intend or expect any investor to hold the ETNs from inception to maturity."

    Even with all this said, the issuer was paid the fees to follow the exact goal laid out in their prospectus. If they had somehow saved this ETN from this event through hedging or other methods, this would have been outside their range of allowed investments and would have been illegal as such. SVXY and XIV got hit the same, the creators of XIV just decided to absolve their fund because they are seemingly worried about future volatility and another event like this happening.
    #21     Feb 8, 2018
    d08, comagnum and zdreg like this.
  2. gkishot


    Let them do the filing of another similar product. It would be interesting to see how it goes with the regulators. BTW, it is not supposed to go to 0, right? Why liquidation?
    Last edited: Feb 8, 2018
    #22     Feb 8, 2018
  3. ElCubano


    Wait a second. If the big banks, AIG etc can be saved from making STUPID investments then why not the little guy? The banks knew exactly the shit paper they were peddling and got hit when some of that paper was left on their books. They above all should know more than the avg about risk. F**K it, sue the Mo-Fo's.
    #23     Feb 8, 2018
    sysdevel99 likes this.
  4. Following in that line of logic, how can you imply that a bank will get in trouble for this one? It's always the little guy who takes the fall. Oh wait, CS is a foreign bank. Nevermind. Whatever. It's just like HSBC right? Foreign banks. pssst. MAGA
    Last edited: Feb 8, 2018
    #24     Feb 8, 2018
    ElCubano likes this.
  5. zdreg


    search the internet. keywords xlv lawsuit. etc.
    these kind of lawsuits are frivolous with zero or minimal recovery
    #25     Feb 8, 2018
    d08, comagnum and MoreLeverage like this.
  6. Well, not if your the attorney billing hours.
    #26     Feb 8, 2018
  7. zdreg


    the sun rises in the morning.:D
    #27     Feb 8, 2018
    beerntrading likes this.
  8. Saltynuts


    "How is an XIV lawsuit even possible?"

    So, someone lost their arse in XIV, and they hired a lawyer, and that lawyer filed a lawsuit.

    Is that helpful?
    #28     Feb 8, 2018
  9. This is from "Investment week" upload_2018-2-8_23-7-58.gif upload_2018-2-8_23-7-58.gif upload_2018-2-8_23-7-58.gif
    Warning Credit Suisse and Nomura could face mis-selling claims on short volatility funds
    Access to non-sophisticated investors

    Credit Suisse and Nomura enacted forced redemptions on the back of heavy losses
    Credit Suisse and Nomura are in danger of facing mis-selling claims after the closure and suspension of a suite of short volatility exchange-traded note (ETN) products in this week's market sell-off, according to legal advisory firm RPC.

    ETNs, which are designed to allow investors to profit from periods of low volatility, saw crippling losses during the market volatility and issuers were forced to close or suspend the products as a result.

    'Periods such as this offer opportunity': Managers to increase market exposure amid long-awaited sell-off

    WEF warns focus on GDP as economic performance indicator is fuelling inequality and short-termism
    Where an investor who buys an ETF owns shares of a fund, representing fractional ownership in the underlying securities held in the fund, the holder of an ETN holds a debt security. The performance of an ETN and its capacity to refund investors is linked to the credit worthiness of the issuer.

    Once valued at $2.2bn, Credit Suisse's product reportedly lost 93% of its value on Monday (5 January), while Nomura saw similar losses, issuing a statement which said "we apologise from the bottom of our hearts for causing great inconvenience for the holder".

    Both products held clauses, which meant severe one-day losses could result in closure.

    Simon Hart, partner in RPC's banking litigation team, said the products are "highly complex instruments which until recent years would not have been accessible other than to the most sophisticated market players".

    He added: "However, the exchange traded nature of these products opened them up to smaller investors such as high-net-worth investors and private investment offices.

    "The holders of these notes are known to include a number of sophisticated institutions taking large positions, but under them are a whole raft of unidentified investors with small exposures."

    Global sell-off halted as Wall Street leads rebound

    Hart said the fact the products have opened up to a wider range of potential investors - outside exclusively sophisticated, professional buyers - leaves them vulnerable to two key liability risks.

    "First, against the issuing banks if the structures were deficient or the close out improperly executed.

    "Second, potential mis-selling claims by private investors if the risks of these specialised products were not properly explained by advisors or in the disclosures to market."

    Following the market chaos in early February, there was concern among some market analysts the products could have contributed to volatility by quickly buying up large volumes of Vix futures to offset their short position, according to the FT.

    "They were not the only driver of the sell-off but they certainly contributed to it and probably exacerbated it," said Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors.
    #29     Feb 9, 2018
  10. d08


    Prospectus clearly states the long term expected value is 0. It also states they have a right to liquidate if it drops 80% (which it did). Just because you don't want it to happen, does not mean they can't do what they said they could.

    The reality is that the world is based on the lowest denominator. This is why countries have warnings on escalators "not to trip and fall". The stupid dictate the rules and the rest have to suffer because of it.

    If you go by rationality and logic, this lawsuit has nothing to stand on but in America, when it comes to lawsuits, anything is possible.
    #30     Feb 9, 2018