(Bloomberg) — Barclays Plc is axing practically half of its US-listed exchange-traded notes a yr after revealing a paperwork error tied to its merchandise that price the financial institution a whole bunch of hundreds of thousands of {dollars}.
The UK-based lender announced Tuesday it would redeem 21 of about 50 ETNs in June. The $71 million iPath Collection B Bloomberg Copper Subindex Whole Return ETN (ticker JJC) is the biggest of the notes being closed, which maintain round $533 million property in whole.
The redemption announcement comes lower than 13 months after Barclays stated it had erroneously sold $15 billion extra structured notes and ETNs over the course of a couple of yr than it had registered for. The financial institution was compelled to suspended any additional issuance — together with for its largest ETNs after which on the majority of its ETN lineup — because it labored to resolve the difficulty.
This prevented any new money from getting into the merchandise, and disrupted the mechanism that saved observe costs according to the worth of their property.
“Barclays is targeted on a core set of services and products that match consumer curiosity and demand. We’re firmly dedicated to constructing a number one place in international fairness exchange-traded merchandise, that are a strategically essential a part of our Equities and World Markets companies,” a spokesperson for Barclays stated concerning the redemptions.
The financial institution didn’t present touch upon whether or not the closures had been linked to the issuance error in its structured observe and ETN enterprise.
“I’m not terribly shocked that they’re closing lots of these,” Bloomberg Intelligence analyst James Seyffart stated. “ETNs have been broadly out of favor within the US for fairly a while.”
The vast majority of the notes set to be redeemed are derivatives-based and observe commodities. “Sadly, a bunch of those which can be closing are the one ETPs obtainable within the US to guess on particular commodity subindexes, like espresso or sugar or cotton,” Seyffart stated.
There are a couple of options to among the Barclays ETNs, nevertheless. As an example, the $35 million Teucrium Sugar Fund (CANE), which tracks sugar futures, will change into the only real sugar-only exchange-traded product within the US.
List of Barclays ETNs that will be redeemed.
ETNs are a detailed cousin of exchange-traded funds, usually lumped in with their more-popular relations. The important thing distinction is that ETNs are unsecured debt obligations that are backed by the financial institution that issued them, slightly than the property the product is linked to. In lots of eyes, this provides additional threat.
The Barclays blunder is one in all a number of high-profile incidents which have helped make ETNs infamous in monetary circles. Some of the well-known noticed Credit score Suisse Group AG’s VelocityShares Each day Inverse VIX Quick-Time period ETN (XIV) — which was designed to revenue in calm markets — on the coronary heart of 2018’s “Volmaggedon” episode. The product was thought to have gotten so huge that it helped gasoline the volatility that worn out virtually all its personal property.
Learn extra: Spotlight Turns to ETF Problem Children After Volatility Blowup
After a collection of delistings and following a takeover by UBS Group AG, the way forward for Credit score Suisse’s observe enterprise is now unclear. Alongside the Barclays redemptions, it suggests a interval of maximum retrenchment for the ETN area.
“Within the US, the investments in ETNs has, total, been declining for quite a few years,” stated Deborah Fuhr, founding father of London-based analysis agency ETFGI. “Traders want the construction and advantages of ETFs.”
Within the fallout from its issuance error, the Securities and Trade Fee in the end discovered Barclays had provided and bought roughly $17.7 billion of securities in unregistered transactions. The regulator’s head of enforcement described the scope of the conduct at concern as “merely staggering.”
The financial institution agreed to pay $361 million to resolve SEC costs. It was compelled to supply to purchase again affected notes, and stated in a September filing that $7.7 billion of securities had been submitted for that so-called recission supply. The ultimate price of the complete episode is unclear.
“ETNs may be cash makers for banks, however Barclays’ mistake was not solely very costly for them in greenback phrases, but it surely additionally got here at an enormous reputational price,” stated ETF Suppose Tank’s Cinthia Murphy.
