Barclays' new iPath Inverse VIX ETN designed to accommodate newcomers

By Emma Trincal

New York, Jan. 14 - Barclays Bank plc rolled out an additional series of iPath exchange-traded notes linked to the inverse performance of the S&P 500 VIX Short-Term Futures Index Excess Return as a way to accommodate new investors, a Barclays senior executive told Prospect News.

The 0% iPath ETN series priced on Thursday and began trading Friday on the NYSE Arca under the symbol "IVO."

It is almost identical to the existing iPath Inverse S&P 500 VIX Short-Term Futures ETNs, which trade under the symbol "XXV."

But Tim Edwards, vice president, Investor Solutions at Barclays Capital, told Prospect News that the new series was needed in order to deliver the same level of participation in the index to new investors as market conditions have changed since the initial product's inception on July 16, 2010.

The structure and term differences between the two series include different inception dates, issue dates, initial valuation dates, final valuation dates and maturity dates, according to a press release. In addition, the two series of ETNs are not fungible with one another.

But the main reason for adding a new series with almost identical terms was to readjust the exposure as the embedded leverage has changed.

"The existing iPath Inverse S&P 500 VIX Short-Term Futures ETN and the new IVO series have exactly the same features. In particular, they both eliminate the daily reset, which makes them different from most [exchange-traded notes] as it allows the embedded leverage to dynamically vary with market movements," Edwards told Prospect News.

"But because of the point-to-point design, the existing ETN has become deleveraged. It no longer offers investors the minus 100% participation rate they were able to get when XXV launched in July," he said.

"That's partly due to current market conditions. When the market is in your favor, your participation decreases, your leverage goes down.

"That's exactly why we had to launch IVO. It has the same features, but it restores the initial level of exposure of XXV."

Asked whether other series would have to be launched in the future to adjust leverage to existing market conditions, Edwards said, "We intend to continue to launch products according to market appetite and circumstance."

Barclays priced $250 million of the new ETNs on Thursday, according to a 424B2 filing with the Securities and Exchange Commission.

The issuer said it planned to sell a portion of the $250 million of notes at par of $20 on the pricing date and the remainder at variable prices from time to time.

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