Nomura Sorry for VIX Note Crash That Burned Retail Investors

Updated on
  • Notes to be redeemed at a 96 percent discount, brokerage said
  • Japanese individual investors were among buyers of Nomura ETN

Nomura Says Sorry to Retail Investors Wiped Out in Rout

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.

Japan’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 a gauge of volatility. 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 yen per unit, Nomura said. It was valued at 1.3 billion yen ($12 million) as of 3 p.m. in Tokyo Wednesday, down from 32 billion yen 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 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.

Read about Credit Suisse’s decision to liquidate its ’VelocityShares’ product

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 reiterated a call for regulation that would clearly spell out the risks associated with inverse and leveraged exchange-traded products.

Bloomberg’s Lisa Abramowicz and Luke Kawa discuss the dip in equity markets and how retail investors fared.

(Source: Bloomberg)

“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 Japanese individuals, while declining to disclose the ratio. There are currently 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.

    Before it's here, it's on the Bloomberg Terminal.