March 23, 2012 / 7:03 AM / 6 years ago

Share issuance of volatility product to resume: Credit Suisse

(Reuters) - Credit Suisse said it will resume issuance of shares of a controversial leveraged exchange-traded product that roiled markets a month ago.

The announcement on Thursday came just after the VelocityShares Daily 2X Long VIX Short-Term exchange traded note TVIX.K saw its price fall by 29 percent in its heaviest day of trading since mid-February.

Volumes in the ETN surged in mid-February as investors increasingly turned to exchange-traded products as a way to bet on or hedge against volatility.

But the rise in volume was a concern to Credit Suisse, which stopped issuing shares, citing “internal limits” for the size of the ETN.

There were concerns that demand for the security would start to have an undue influence on the volatility futures market, rather than tracking those contracts.

Shares will be issued again on a limited basis, the company said in a statement.

The VIX - the CBOE Volatility Index .VIX - is the market’s favored gauge of investor anxiety. It is not a traded index, but futures contracts trade on the CBOE, and a handful of exchange-traded products track those futures contracts.

Niche exchange-traded products have at times come to dominate trade in parts of the market. After Credit Suisse suspended share issuance in late February, volumes declined - at least until Thursday.

Shares hit an intraday year low of $9.70 before closing at $10.20 Thursday, with more than 30 million shares traded. It was trading at a big premium to its net asset value, which has been increasing since Credit Suisse stopped creating new shares.

Signs that this product could be influencing VIX futures can be seen in trading on February 10, 13, and 14. On those days, the stock market was relatively quiet, with the S&P 500 .SPX moving by no more than 0.7 percent in either direction.

But volume in VIX futures spiked to more than 100,000 contracts each day, according to CBOE data, the most since the August 2011 week when the United States had its credit rating downgraded from triple-A.

Reporting By David Gaffen, Jessica Toonkel and Angela Moon in New York, and Doris Frankel in Chicago; Editing by Kim Coghill

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