WisdomTree to terminate two leveraged oil ETPs after triggering threshold

ETF closures

WisdomTree is set to shut trading on two 3x leveraged oil ETPs after they triggered a clause in their rules following the extreme volatility in oil prices on Monday.

The WisdomTree WTI Crude Oil 3x Daily Leveraged (3OIL) and the WisdomTree Brent Crude Oil 3x Daily Leveraged (3BRL) ETPs suspended trading on 9 March before the European markets opened.

The two ETPs will remain suspended until the ETPs are closed as soon as it is “practically possible”.

The reason for the terminations is both ETPs breached the “severe overnight gap event threshold” which gives the swap provider the option to close the swap.

The threshold for both ETPs is 20%. On 6 March, the future closed at $41.5 however by 4am on 9 March the price had fallen to $27.8, a 33% drop. Because the products are 3x leveraged, this represented an overnight fall of 99% causing the swap provider to issue an official termination notice.

A WisdomTree spokesperson told ETF Stream: “This termination is in accordance with “severe overnight gap event” provisions set out in these products prospectuses.

“The purpose of these provisions is to allow the swap provider to terminate the swap before it reaches or breaches a floor of $0, where the product bears no value for investors.

“Consequently, the products which relied on these swaps will go through a compulsory redemption as soon as it is practically possible.”

The dramatic fall in oil prices on Monday came after OPEC and Russia failed to agree production cuts over last weekend.

It is thought Saudi Arabia could increase production to 11 million barrels per day (bpd) in April in an effort to maintain its market share consequently spooking oil traders.

3OIL and 3BRL were launched under the Boost brand in December 2012.

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