/

Nomura apologizes to investors burned in bet against VIX ‘fear index’

by

Bloomberg

Nomura Holdings Inc. issued an apology after investors in a $300 million product betting on low volatility were all but wiped out during this week’s stock market turmoil.

The country’s biggest brokerage said Wednesday that it has received inquiries from individual investors after its decision to redeem the exchange-traded notes at a 96 percent discount.

“We sincerely apologize for causing significant difficulties to investors,” its Nomura Europe Finance unit said in a statement a day earlier.

Nomura’s Next Notes S&P500 VIX Short-Term Futures Inverse Daily Excess Return Index ETN involved a bet against stock-market gyrations by moving in the opposite direction to the VIX, a gauge of volatility also known as the “fear index.” Its early redemption — the first of its kind in Japan — was triggered after the notes lost more than 80 percent of their value amid the global equity market selloff.

“This is a listed product, and we believe it can be bought by both individual and institutional investors,” Nomura said in an emailed statement. It declined to comment on any positions it took in the product or any impact of its demise on earnings.

The ETN will be redeemed at ¥1,144 per unit, Nomura said.

In Tokyo it was valued at ¥1.3 billion ($12 million) as of 3 p.m. Wednesday, down from ¥32 billion on Monday.

Nomura’s product is among more than a dozen worldwide that are being liquidated or halted as bets soured that the calm pervading global stock markets would persist. Credit Suisse Group AG is buying back a volatility ETN that’s down 95 percent from a peak of $2 billion last month.

The collapse is raising concerns over whether novice investors should pile into such complex trades. BlackRock Inc., the world’s biggest provider of exchange-traded funds, on Tuesday repeated a call for regulation that would clearly spell out the risks associated with inverse and leveraged exchange-traded products.

“This is a very risky product,” Kiyoshi Kimura, an executive at the Japan Association for Individual Investors, an advocacy group, said of the Nomura ETN. “The question is whether brokerages fully explained it to retail investors or not.”

Miwa Aonuma, a Tokyo-based spokeswoman at Japan Exchange Group Inc., said investors in the Nomura ETN include individuals, while declining to disclose the ratio.

There are 24 ETNs traded on the Tokyo Stock Exchange, and the Nomura product was the first to trigger an automatic redemption since the first listing in 2013, according to Japan Exchange Group, which operates the bourse.