Credit Suisse ETNs Now Trading OTC

April 5, 2009 by  
Filed under Commentary, ETF Closings, ETFs, ETNs

Three exchange traded notes (ETNs) from Credit Suisse were delisted from the New York Stock Exchange last Friday (April 3, 2009) and began trading over-the-counter rather than on a securities exchange. 

Back on March 10, Credit Suisse (CS) announced its intent to delist, but not close, three of its ETNs that are marketed under the Elements brand.  No new shares are being created, and without this arbitrage mechanism the market price no longer tracks the actual value of the shares.

The affected securities are:

  • Elements MLCX Gold Index ETN (ticker = CDSUI, former ticker = GOE)
  • Elements MLCX Livestock Index ETN (ticker = CDSUH, former ticker = LSO)
  • Elements MLCX Precious Metals Index ETN (ticker = CDSUJ, former ticker = PMY)

The background story on these ETNs is quite interesting.  Recent trading in Elements MLCX Gold Index ETN was strange enough to draw the attention of the NYSE.  Additionally, I issued a “Sell” on the ETN formerly known as GOE on March 9 at a price of $114.90 while the indicative value (NAV) was just $10.90.  It was trading at a 1,000% premium.  At that time Credit Suisse informed me they were not planning to issue any more shares and that the market maker was out of inventory.

The trading price of Elements MLCX Gold Index ETN subsequently dropped significantly, but it is still trading at an unjustifiable premium.  In Friday’s OTC trading action, it had a low of $10.00, a high of $40.00, and a closing price of $26.00 as 6,320 shares traded hands.  The shares had a 300% range while the indicative value remained below $10 per share.  The Elements website indicates an indicative value of $9.80 as of April 2, 2009.

The Elements MLCX Precious Metals Index ETN (CDSUJ) traded 7,600 shares on Friday with a price range of $5.50 to $7.50.  Elements MLCX Livestock Index ETN (CDSUH) did not have any trades.  If you did not heed earlier warnings to get out of these products, then I suggest you try to sell with a limit order at a price you are willing to accept.  Be prepared to wait for a day, and maybe several days, to get your order filled.  The OTC market is not nearly as efficient as the NYSE.

Disclosure:  no positions

Comments

9 Responses to “Credit Suisse ETNs Now Trading OTC”

  1. Tony B on April 5th, 2009 10:56 pm

    I own PMY at 8.50 . I was not aware of the delisting until it happened. It now appears to be trading 5.50-7.50. Will the fact that its now OTC suggest it will not retain its value? Is this thing headed to 0.
    If the product is liquidated, isn’t it liquidated at NAV? Which I think is around 8.00. What is the best course of action to take to get out of this product with the least amount of damage?

  2. Ron Rowland on April 6th, 2009 12:24 am

    Tony,

    Unlike other ETF/ETN providers, the Elements brand of ETNs generally do not liquidate. They have now delisted eight ETNs, but have not liquidated any of them. You can check the indicative value of what used to be known as PMY here:

    http://www.elementsetn.com/MLCX-Precious-Metals-ETN.aspx

    As you can see, the last posted value was $7.99 on 4/2/09. You should be able to sell your shares back to Credit Suisse at or very near the indicative value. You can either get out now (at ~ $8) or hold out for a better price down the road. Just don’t sell with a market order like that $5.50 trade that went through on Friday.

    Good luck.

  3. Ike on April 6th, 2009 9:28 am

    I bought 295 shares of GOE at 54 not knowing it was going to do this. Ron, do you recommend that I dump it or hold on to it in hopes it will recover some of its value? Thanks!

  4. Ron Rowland on April 6th, 2009 10:51 am

    Sorry Ike, but you’ve been taken. When you bought GOE at $54 it was only worth $10. It’s true value/worth has not changed “relatively” much the past few months, ranging from about $9 – $10.

    http://investwithanedge.com/goe-trading-at-1000-premium-sell-now

    You can try to sell with a high limit price and hope that the buyer doesn’t realize it is only worth about $9 today. But the bottom line is that you paid $54 for something that was only worth $9 or $10.

  5. Tony B on April 6th, 2009 5:24 pm

    Thank you Ron, I appreciate your comments and advice.
    You are much more informative than contacting the representatives for Elements.
    I would like to add that I was able to get through to Credit-Suisse and they have not started to issue bids for the delisted products yet, but hope to by mid-week.

    I am also an owner of Rogers Agriculture (RJA). Can you explain their situation?
    I understand that you recommend avoiding all Elements products, however, many people already own these ETF/ETN’s, especially the ones with Jim Rogers name on it. Can the Rogers products over come the current problems or would it be wise to look for an exit?

    Thanks again

  6. Ron Rowland on April 6th, 2009 5:41 pm

    The situation with the Jim Rogers Elements ETNs can be found here:
    http://investwithanedge.com/more-trouble-for-elements-etns

    They claim that everything will be back in order by the end of the month. However, I have lost faith in Elements. It appears that they do not respect the concept of ETFs and ETNs having the ability to perform in-kind exchanges.

    If I owned RJA and wanted to continue to have exposure to agriculture, then I would sell RJA and buy PowerShares DB Agriculture (DBA). But you have to do what you think is best for you.

  7. Tony B on April 7th, 2009 7:00 am

    I guess it goes without saying that a greater amount of due diligence is required before jumping into these products.
    What about ETF Securities Ltd.? I know they are not based in the US, but do you follow them? They offer a wide variety of ETF/ETC’s. Are they worth looking into?
    Thanks

  8. Ron Rowland on April 7th, 2009 2:50 pm

    ETF Securities does not have any products listed in the US. Therefore, I do not follow them currently. They have filed with the SEC to offer both a gold and silver ETFs here, but they are not available yet.

  9. Anthea on June 12th, 2010 6:18 pm

    I own PMY at 8.50 . I was not aware of the delisting until it happened. It now appears to be trading 5.50-7.50. Will the fact that its now OTC suggest it will not retain its value? Is this thing headed to 0. If the product is liquidated, isn’t it liquidated at NAV? Which I think is around 8.00. What is the best course of action to take to get out of this product with the least amount of damage?
    +1