Fidelity has temporarily blocked investors from buying the ProShares Short VIX Short-Term Futures ETF, which hit headlines last week after suffering heavy losses as volatility returned to the market, according to reports.
Having stayed stubbornly low for over two years, volatility made a dramatic comeback. The Cboe Volatility index (VIX) spiked at almost 50 early Tuesday morning, before dropping to finish the day at around 37. Over Wednesday it retreated to end the day at 25, on Thursday it peaked at almost 36, before dropping on Friday from a high of 39 to end the week at around 30.
The huge spike seen at the start of the week resulted in heavy losses for three high-profile products that bet on volatility staying low: VelocityShares Inverse VIX Short-Term ETN, VelocityShares Daily Inverse VIX Medium-Term ETN and the ProShares Short VIX Short-Term Futures ETF offering.
The three ETPs provide inverse or short exposure to the VIX, which is known as Wall Street’s ‘fear gauge’ and measures the volatility of the S&P 500 index, essentially betting that it will stay low or fall further.
All three halted trading on February 6 as a result of losses. Credit Suisse, which is the largest investor and issuer of the VelocityShares Inverse VIX Short-Term ETN, has pulled the plug on the product. The firm said that it will no longer issue new units of the product and its last trading day is expected to be February 20.
The ProShares offering has weathered the storm, and despite losing 80% of its value at the start of the week, it actually took in $500 million, according to Bloomberg, as traders eyed a quick rebound.
A spokesman for Fidelity told the Financial Times: ‘We have blocked opening trades. You can’t buy them but you can sell them if you own them and we have increased margin requirements on other volatility ETFs to protect customers on outsized risk in this market environment.’
According to Bloomberg, Fidelity blocked customers buying the ProShares Short VIX Short-Term Futures ETF, as well as VelocityShares Inverse VIX Short-Term ETN and VelocityShares Daily Inverse VIX Medium-Term ETN, on February 6, but did not make this public until Friday February 9.