Credit Suisse Asked by Regulator for Details of ETN Crash

Credit Suisse Group AG (CSGN) was asked by Massachusetts’ chief securities regulator for information about an exchange-traded note that whipsawed investors last week, and Senator Jack Reed, a Democrat of Rhode Island, said he will hold a hearing on the industry.

William F. Galvin, secretary of the commonwealth, told the Zurich-based bank in a March 23 letter his office was conducting an inquiry into its VelocityShares Daily 2x VIX Short-Term ETN. (TVIX) Galvin demanded the names of investors who purchased the ETN from Feb. 20 to March 23, and information about the firm’s March 22 announcement that it would resume issuing notes.

The ETN became unhinged from the index it seeks to track in an episode that highlighted the risks of complex exchange-traded products. After the bank said Feb. 21 it had temporarily halted issuing new shares, the market price of the notes rose to a premium above their indicative value that reached 89 percent on March 21 before crashing to 7 percent on March 23.

Reed, who held a hearing in October that examined whether exchange-traded products posed risks to financial markets and investors, said he was closely monitoring the issue.

‘More Attention’

“I think this market deserves more attention from both domestic and foreign regulators and I plan to hold another hearing on ETFs and related issues in the near future,” Reed said in an e-mailed statement.

The Galvin letter focused partly on the timing and rationale of the bank’s decision to resume issuing shares. The ETN’s share price began falling hours before Credit Suisse made the announcement. The letter, which was reported earlier today by Dow Jones Newswires, asked for the names of those who participated in the decision.

Galvin gave Credit Suisse until April 5 to respond.

“Credit Suisse is cooperating with regulatory authorities,” said Katherine Herring, a spokeswoman for the bank in New York.

ETNs are unsecured debt instruments that track an index and trade on an exchange, like stocks.

To contact the reporter on this story: Christopher Condon in Boston at

To contact the editor responsible for this story: Christian Baumgaertel at

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