2 Market Meltdowns: BATS And TVIX

Includes: BATS, TVIX
by: Roger Nusbaum

A few brief items this morning.

First up is the meltdown of the Velocity Shares Daily 2x VIX Short Term ETN which is more commonly referred to by its symbol, which is TVIX. This is a levered ETN that tracks the futures market for the VIX index. Futures oriented products seem to have the greatest potential for "malfunctioning" one way or another.

The issue with TVIX is that issuer Credit Suisse had to stop creations due to internal size limits which caused a massive variance between the market price and IIV (the ETP equivalent of NAV)--it just blew up.

Any exchange traded product can have some sort of problem like trading at a discount or premium to its IIV but this is rarer with plain vanilla stock and bond ETFs, and when it has happened with plain vanilla ETFs it has lasted only a short time. The next time there is a flash crash or other problem like with bond ETFs in late 2008 I will again assume short-lived blip and not sell.

I would think issues like this with exchange traded notes would also be short-lived but something like TVIX has a lot more going on under the hood than something like the iShares Global Nuclear Index Fund (NASDAQ:NUCL).

For more in depth coverage of TVIX you can also read this from Barron's, and also the Kid Dynamite blog as several blog posts about it.

The BATS IPO came off as probably the strangest debut of all time. BATS is a stock exchange and shares in its own IPO malfunctioned. As CNBC reported it, there was a trade at $15.25 after pricing at $16.00 and then shares traded briefly at pennies before all trades were ultimately canceled. Finally the company canceled the IPO altogether. To my knowledge there is no connection to Billy Batts.

The last item seems like a good follow up to yesterday's post about $2 million. Cullen Roche excerpted a commentary from James Montier about happiness. To the extent people can figure out what makes them truly happy, they might end up being able to waste less time and money on things that don't actually create happiness.