Credit Suisse ETNs Now Trading OTC

Three exchange traded notes (ETNs) from Credit Suisse were delisted from the New York Stock Exchange last Friday (April 3, 2009) and began trading over-the-counter rather than on a securities exchange.

Back on March 10, Credit Suisse (CS) announced its intent to delist, but not close, three of its ETNs that are marketed under the Elements brand. No new shares are being created, and without this arbitrage mechanism the market price no longer tracks the actual value of the shares.

The affected securities are:

• Elements MLCX Gold Index ETN (ticker = CDSUI, former ticker = GOE)
• Elements MLCX Livestock Index ETN (ticker = CDSUH, former ticker = LSO)
• Elements MLCX Precious Metals Index ETN (ticker = CDSUJ, former ticker = PMY)

The background story on these ETNs is quite interesting. Recent trading in Elements MLCX Gold Index ETN was strange enough to draw the attention of the NYSE. Additionally, I issued a “Sell” on the ETN formerly known as GOE on March 9 at a price of $114.90 while the indicative value (NAV) was just $10.90. It was trading at a 1,000% premium. At that time Credit Suisse informed me they were not planning to issue any more shares and that the market maker was out of inventory.

The trading price of Elements MLCX Gold Index ETN (CDSUI.OB) subsequently dropped significantly, but it is still trading at an unjustifiable premium. In Friday’s OTC trading action, it had a low of $10.00, a high of $40.00, and a closing price of $26.00 as 6,320 shares traded hands. The shares had a 300% range while the indicative value remained below $10 per share. The Elements website indicates an indicative value of $9.80 as of April 2, 2009.

The Elements MLCX Precious Metals Index ETN (CDSUJ.OB) traded 7,600 shares on Friday with a price range of $5.50 to $7.50. Elements MLCX Livestock Index ETN (CDSUH.OB) did not have any trades. If you did not heed earlier warnings to get out of these products, then I suggest you try to sell with a limit order at a price you are willing to accept. Be prepared to wait for a day, and maybe several days, to get your order filled. The OTC market is not nearly as efficient as the NYSE.

Disclosure: no positions

Comments

[James Davis:]

GOE traded $12 - 13 for size.

I don't believe it was possible to short this rat, and anyone that went long at those absurd high prices, well, they would have been better off just burning their money.

Apr 06 04:38 PM

[James Davis:]

Also, who exactly was BUYING those shares at 40 and up?

How many shorts could there have been to be squeezed or bought in?

Something ungodly stupid about how this traded. Makes you wonder who is watching the store.

Apr 06 04:40 PM

[James Davis:]

I have an even better question. How about taking a shot at this.

Why did this persistently trade at 40 on Arca or wherever it was on the NYSE, and as soon as it moved to the pinks it dropped to 12 ?

I know stock prices are pure bs, but this is really a black eye for orderliness.

Apr 06 06:11 PM

[Ron Rowland:]

My guess is that many of the NYSE trades were either market orders or were initiated by someone that was not aware of the premium. Trading on the pinks takes a little more knowledge, and the fact that they moved to the pinks caused potential buyers to ask those questions. Additionally, I think what you are seeing on the pinks are mostly sales by retail investors trying to get out, and Credit Suisse may be the only buyer at this time.

Apr 06 09:03 PM

[James Davis:]

GOE traded 4000 or more shares a day for weeks. There's no way this was all trading by retail.

I find it profoundly suspicious and disturbing that GOE magically traded right down to near par the first day of pink trading.

What 'buyer' could have been so stupid to pay 40-50 , up to $100 for shares that were worth $10? And all of a sudden a NOT UNEXPECTED move to the OTC caused all those idiots to wise up. lol.

No, there's more to this than simple supply and demand.

Apr 07 01:17 AM

[Ron Rowland:]

Starting in early February many momentum players jumped onboard and it took on a life of its own. It ran from $10 up to $114. There were hundreds of thousands of shares traded at prices well above NAV during this period.

My belief is that the overwhelming majority of the buyers above $10 did not know that the value was $10. They believed it was an ETF/ETN and was designed to have its price track its value. They didn't think they were buying a closed-end fund.

Apr 07 04:13 PM