The first ETP closure of 2011 is now upon us. After a four-month streak with no fatalities, a Barclays ETN will have its final day of trading Wednesday (5/4/11). The Barclays ETN+ Short D Leveraged Exchange Traded Notes Linked to the Inverse Performance of the S&P 500 Total Return Index (BXDD) have been called for redemption. The redemption, delisting and closure were triggered when the value dropped to $10 from an initial offering price of $50.
I reviewed BXDD, a 3x inverse S&P 500 product, at its November 2009 inception in Barclays Launches No-Reset Leveraged ETNs. At a time when many were criticizing the daily reset of most other leveraged products, these were the first ETFs or ETNs to have no reset at all. I said back then investors should “be careful what you wish for” because the reset was actually a benefit: protection from ruin.
In my initial review, I mentioned that a 33% move in the S&P 500 would send one of their new no-reset ETNs to zero. Barclays was well aware of this, too, and so provided a stop-loss and redemption mechanism if the value of any note dropped below $10.
According to Barclays, BXDD fell to $10 on April 28, 2011, and they will now automatically redeem the note for $10.00. Barclays further stated the “securities will be redeemed (in whole, but not in part) on May 5, 2011." To avoid any surprises or delays in the redemption process, I would advise any holders of BXDD to sell their shares prior to delisting using a limit order. Surprisingly, most trades the past two days have been for a few cents more than the $10 redemption value.
Barclays halted creation of BXDD in February, which was probably a warning to investors that it was getting close to its redemption trigger. BXDD and its -2x counterpart (BXDC) are both featured prominently in ETF Deathwatch every month.
BXDD becomes the first ETP casualty of 2011, the 14th ETN to delist, and the 174th ETP to face closure. Further information on the stop-loss termination event may be found in the prospectus.
Disclosure covering writer, editor and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.