Nomura says sorry for the ‘significant difficulties to investors’ its ETN redemption has caused
Tokyo — Nomura Holdings issued an apology after investors in a $300m product betting on low volatility were all but wiped out during this week’s stock-market turmoil.
Japan’s biggest brokerage said on Wednesday that it had received inquiries from individual investors after its decision to redeem the exchange-traded notes (ETNs) at a 96% discount. "We sincerely apologise for causing significant difficulties to investors," its Nomura Europe Finance unit said in a statement a day earlier.
Nomura’s Next Notes S&P 500 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% 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 e-mailed 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 per unit, Nomura said. It was valued at ¥1.3bn ($12m) as of 3pm in Tokyo on Wednesday, down from ¥32bn 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 is buying back a volatility ETN that’s down 95% from a peak of $2bn in January.
The collapse is raising concern over whether novice investors should pile into such complex trades. On Tuesday, BlackRock, the world’s biggest provider of exchange-traded funds, reiterated a call for regulation that would clearly spell out the risks associated with inverse and leveraged exchange-traded products.
"This is 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 spokesperson at Japan Exchange Group, said investors in the Nomura ETN included 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.