Fidelity isn't letting clients buy a fund that bets against volatility because there's too much volatility

  • Fidelity isn’t letting its customers bet against volatility because there’s so much volatility in the markets.
  • It’s blocking trading of a product that aims to deliver returns that are the inverse of the Volatility Index.

Fidelity isn’t letting its customers short volatility via an exchange-traded fund because there’s too much volatility in the markets.

The US brokerage announced Friday it would temporarily block customers from buying the ProShares Short VIX Short-Term Futures ETF (SVXY), which is designed to provide single-day returns that are the inverse of the Cboe Volatility Index, citing current market conditions as the rational.

“We have blocked opening trades [in SVXY],” a Fidelity spokesperson told the Financial Times. “You can’t buy them but you can sell them if you own them and we have increased margin requirements on other volatility ETFs to protect customers on outsized risk in this market environment.”

The fund was rocked earlier this week when volatility came storming back into the markets, resulting in a 90% decline in its value. A similar fund managed by VelocityShares suffered a similar fate, resulting in Credit Suisse pulling the plug. Still, it looks like traders are ready to hop back on the short volatility trade.Assets in the ProShares fund have risen sharply from $US300 million on Tuesday to $US640 million Friday morning, according to Bloomberg data.

The implosion of the two funds followed more than a year of stellar returns fuelled by a market stuck in the doldrums.

This week marked a sharp departure from that environment. Not only did the stock market enter an official correction, but the VIX has stayed above 30.

The decision, as noted by the FT, could have an impact on Cboe which relies heavily on trading volumes from VIX products for revenue. Cboe’s stock has tumbled by more than 20% since the two funds imploded Monday night.

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