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Volatility-linked Investment Products may be Unsuitable for Most Investors

On Behalf of | Feb 27, 2019 | Suitability

Investments in volatility-linked investment products raise suitability concerns for retirees and other retail investors.  The Cboe Volatility Index (VIX) attempts to track 30-day forward looking volatility in the stock market based upon the price of S&P 500 Index put and call options. It is often referred to as the “fear index,” because its value generally increases when traders are concerned about future volatility in the stock market.

The Financial Industry Regulatory Authority (FINRA) has recently issued a regulatory notice warning member firms that VIX-Index linked products “are highly likely to lose value over time.”  FINRA further warned firms that such products may not be suitable for retail investors, “particularly those who plan to use them as traditional buy-and-hold investments.”

There are many exchange traded investment products linked to the VIX Index, such as:

iPath S&P 500 VIX Short-Term Futures ETN (VXX);

Proshares Short VIX Short-Term Futures ETF (SVXY);

Proshares Ultra VIX Short-Term Futures ETF (UVXY);

VelocityShares Daily 2x VIX Short-Term ETN (TVIX);

ProShares VIX Short-Term Futures ETF (VIXY);

iPath S&P 500 VIX Mid-Term Futures ETN (VXZ/VXZB);

VelocityShares VIX Short-Term ETN (VIIX).

The VIX-linked products began to receive heightened attention when the index spiked 118 percent in a single day on February 5, 2018.  This led to the high-profile collapse of the VelocityShares Daily Inverse VIX Short-Term (XIV) ETNs, a product issued by Credit Suisse that attempt to perform  invesely to the VIX.  Many retirees and other retail investors sustained substantial losses as a result of these investments.

On January 9, 2019, after a FINRA securities arbitration hearing in New Orleans, Louisiana, Kirk Reasonover and Nicholas Berg of Reasonover & Berg, LLC obtained an arbitration award for $250,495 in favor of a retiree for suitability claims against his broker for recommending unsuitable investments, including investments in the iPath S&P 500 VIX Short-Term Futures ETN (VXX).  Our firm is continuing to investigate potential claims against other broker-dealers who have recommended investments in VIX-linked investment products to retirees and other investors. If you have lost money because your broker recomended an invesment in a VIX-linked product, contact Reasonover & Berg, LLC at 504-613-4941 for a free consultation to find out if you may have a claim.  From our office in New Orleans, we serve clients throughout Louisiana and beyond.