Temporary trading halts on WisdomTree SandP 500 VIX Short-Term Futures Daily Leveraged 2.25x ETP
On the morning of 5th August 2024, following a few days of elevated market volatility, the WisdomTree S&P 500 VIX Short-Term Futures 2.25x Daily Leveraged ETP (ISIN: XS2819843736) saw temporarily trading halts on various exchanges as a result of significant price moves seen in the ETP since its previous closing prices on exchanges.
Some of the exchanges affected have been Euronext Italy, Euronext Paris and Deutshce Bourse. While each exchange may have slightly different set of rules and parameters governing opening auctions, in the case of WisdomTree S&P 500 VIX Short-Term Futures 2.25x Daily Leveraged, the large price increase that was observed during 5th August triggered exchanges’ invoking so called “volatility halts”.
Volatility halts, sometimes also called ‘circuit breakers’ are mechanisms designed to protect traders from potentially executing orders away from the fair market price of the exchange traded product (ETP) and to allow enough time to the market for better price discovery. During a volatility halt, normal trading mechanisms are typically put on hold, and investors may not able to execute orders until normal market conditions are restored. Halts are often resolved after minutes, but may take longer. Exchanges might also have an auction following a halt, to clear the market and aid the return to normal market functioning.
Furthermore, investors placing trades through brokers can see different behaviours depending on how the broker is set up to deal with these halts and auctions. Investors should stay in touch with their broker and work through their brokers platforms to get trades executed as soon as trading resumes.
During extreme circumstances such as the ones experienced by WisdomTree S&P 500 VIX Short-Term Futures 2.25x Daily Leveraged ETP, the volatility halt lasted for a considerable time as the fair price of the ETP exceeded the closing price of the previous day by more than 60%. When a new price cannot be validated by an exchange automatically, such as in this case, there are market supervision teams that after establishing that the new price of the ETP is in line with its fair value may be able to intervene to override the auction and help normal trading resume. This can take a few hours.
It is important to remember that the WisdomTree VIX Short-Term Futures 2.25x Daily Leveraged ETP does not track the CBOE Volatility Index (or ‘VIX Index’) directly, but rather tracks the S&P 500 VIX Short-Term Futures (0930-1600 ET) (USD) ER Index (VXXIDSPE), plus the interest revenue adjusted to reflect fees and costs associated with the product.
The S&P 500 VIX Short-Term Futures (0930-1600 ET) (USD) ER Index measures the performance of a basket of futures contracts of different short-term maturities which refer to the VIX. The performance of the S&P 500 VIX Short-Term Futures (0930-1600 ET) (USD) ER Index is typically highly correlated with the VIX Index but the daily movements can vary significantly between these two indices.
Investors in Short and Leveraged ETPs should consider the additional risks associated with these products and the fact that they may be more susceptible to volatility halts. For more information, please see our educational resources available here, including among other resources 6 ways volatility increases risks for S&L ETP investors, and 7 things to remember when investing in S&L ETPs