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While Credit Suisse is doing the right thing and liquidating/accelerating $DGAZF . They, Barclays, and Deutsche Bank should do the same with their other creation halted OTC ETNs. Here's what the price movement looks like after trading halted. 11,996% premium to NAV. 1/X
That doesn't even cover just how crazy things actually got. At it's peak yesterday afternoon this thing traded at $25,000 a share! NAV was just $124.... $DGAZF 2/x
Here's the list of other Credit Suisse ETNs that could *potentially* fall victim to similar antics as $DGAZF. Notice the difference in Assets and Mkt Cap for $DGAZF (Magent box). Mind boggling numbers. The likely reason to keep these things active? The money they can make. 3/x
Like i said though, Credit Suisse isn't alone. Barclays and Deutsche Bank also have ETNs in the same or similar position with OTC-listed creation-halted ETNs. If you're gonna delist, you shouldn't be able to permanently halt creations IMO. Its a recipe for disaster. 4/X
Here's what I think is the full list of OTC traded US ETNs. I left $DGAZF on here for reference. 5/x
The people most hurt in the $DGAZF situation were those who were short. They got royally screwed you have to feel for them, but these weren't no-nothing retail traders. I mean if you are shorting an over-the-counter 3x inverse leveraged ETN ... 6/x https://twitter.com/EricBalchunas/status/1293650427842527233?s=20
Which leads to another question. Should Credit Suisse really have been lending these shares out short? Looks like they were even getting north of 8% on the borrow. Just seems egregious. 7/x
All of that said, I want to say that if you were trading/shorting this thing: You should have had atleast some idea that you were playing with fire. Absolutely feel for people who got burned but this isn't something you just stumble upon on Robinhood.. 8/x https://twitter.com/JSeyff/status/1293541897798070273?s=20
Many things contributed here:
1. Halted Creations -market makers cant create shares to offset demand.
2. Delisted and left to trade OTC
3. Low float AND Low volume: Look at $DGAZF's volume in green compared to $TVIXF's ... barely visible. (TVIXF also OTC & Creation-halted) 9/x
1. Halted Creations -market makers cant create shares to offset demand.
2. Delisted and left to trade OTC
3. Low float AND Low volume: Look at $DGAZF's volume in green compared to $TVIXF's ... barely visible. (TVIXF also OTC & Creation-halted) 9/x
4. Short Interest-- Shares borrowed (short) as a % of shares outstanding: There were 139k $DGAZF shares short as of 7/31. (Not certain how accurate the 6/15 number is). 10/x
5. Limited Options/Choices: There are no other 3x levered nat gas products in the U.S. anymore. Many leveraged and energy related ETPs liquidated in March-June. If you're set on -3x exposure, you might've taken chances on $DGAZF instead of going with Proshares' -2x $KOLD 11/x
How does this get handled? I don't know but the right thing for the note holders and shorts is to close the positions at the acceleration/liquidation value on 8/25. Talked to a guy today who technically owes ~$20 million on what was a <$100k short position. It's not right.. 12/X
