Little Fishes Are Fighting Back
Author： Ken Poon
Over the past few weeks, a number of leveraged and inverse exchange-traded products, including over 30 ETFs and ETNs were ceased trading—sometimes overnight. Investors holding those instruments have suffered huge unrecoverable losses.
Some were closed by a "mandatory redemption”, some were closed at the sole discretion of the issuers. Most of these ETNs weren't intended to be closed for another two decades or more. For example, Citigroup chose to redeem the VelocityShares 3x Long Crude Oil ETN (UWT) and VelocityShares 3x Inverse Crude Oil ETN (DWT), at their sole discretion.
UBS chose to redeem its ETRACS - ProShares Daily 3x Inverse Crude ETN (WTID), after the note triggered a "stop loss termination" event on March 20.
ProShares also chose to close six funds, or three pairs of up-and-down ETFs designed to provide 3x and -3x exposure to their underlying indexes.
While issuers may have the right of these redemptions and closures of the exchange-traded products, their acts were highly unethical leaving thousands of investors in red. Many issuers argued that investors shall have read the prospectuses before purchase, as some prospectuses mentioned these products were meant for day trade and sophisticated investors only. However, if this was so intended for, the way that these products were available for trade at all brokerage’s platforms with no difference to other stocks or ETFs prompts a regulatory question. It was just like allowing poisons to be sold at supermarkets without a warning sign, and the victims who bought and consumed them were the ones to be blamed instead as they were accused of not reading the fine print.
The issuers also manipulated the prices and timed the redemption for their own benefits at the expense of investors.
There wasn't sufficient notice given to these instrument holders too when the issuers made those announcements of closure. Many only found out days if not weeks after when they accessed to the news.
One may question “Where is the justice?”, “What protection investors were given?”, “Why these weren’t properly regulated?”, “Why these big banks did this without even having to worry about their reputation and credibility?”
We are a group of small investors who demand an investigation and a better safety net. We formed Facebook groups “Little Fish Tears” and “UWT Shareholders” and we are making a bigger social media campaign to draw the public’s attention to these loopholes and the unethical and sometimes abusive conduct of these big banks. Please join us on those FB groups and take action to fight back.