The days of the inverse triple (then double, then single) leveraged ETFs are coming to an end. And in a market where the only direction is only up, with zero volatility, zero distributions, and now, zero volume, we wish them a quick and painless death. Barclays Bank has just announced it is suspending creations of its inverse leveraged ETN to the S&P500, in an act that is supposedly "a reflection of what rising stock prices can do to the price of a security designed to produce profits in a falling market" but is really a capitulation by one of the last leveraged ways to play the failure of central markets. Of course, Iosif Vissarionovich Bernanke will fail eventually, as central planning always does, but by then there will be no readily accessible ways to play the downside.
From Index Universe:
The Barclays Short D Leveraged Inverse S&P 500 TR ETN (NYSEArca: BXDD), which is now trading at about $16 a share, would be automatically redeemed should its intraday indicative value fall to $10 or lower before the note matures, Barclays said in a press release. Barclays said it “temporarily suspended any further sales from inventory” of the notes. A Barclays official declined to elaborate.
“Based on the performance of the underlying index since the inception date of the notes, it is likely that a stop loss termination event may occur with respect to the notes,” the company said in a press release, adding that daily redemptions are not affected by its decision. A Barclays official declined to elaborate beyond the content of the press release.
The notes were trading at around $64 a share when they were launched in November 2009, and, again, are now trading around $16. The S&P 500, meanwhile, has risen 30 percent in the past year, fueled by the Federal Reserve’s loose monetary policy and cautious optimism that the U.S. is slowing digging itself out of its worst downturn since the 1930s.
For those who are long the BXDD and one day look at their brokerage accounts only to see a token amount of money where the ETF once was, here is the reason:
Should a stop-loss termination event occur, note holders would receive a cash payment equal to the stop-loss redemption value, which will be determined by what Barclays called the “calculation agent.”
The payment will be less than the principal amount per note, and won’t exceed $10 per note, the company said.
Look for a comparable fate to befall all other inverse leveraged synthetic CDOs, until the only remaining products are those allowing a leveraged bullish expression. And when those who are set on fighting the Fed decide that shorting these is the natural next step, look for various custodians to raise collateral and margin rates (or simply make them HTB) on all positive levered ETNs making shorting virtually illegal.