WisdomTree to shut another leveraged oil ETP

ETF closures

WisdomTree is set to shut trading on another triple leveraged oil ETP amid the historic moves in oil prices this week.

The $23.5m WisdomTree WTI Crude Oil 3x Daily Short ETP (3OIS) suspended trading before markets opened on 22 April after volatility in oil prices triggered a “severe overnight gap event”.

According to the prospectus, when the underlying benchmark rises over 20%, this gives the swap provider the option to shut trading in the ETF. As 3OIS is an inversed product, a 20% rise in the underlying benchmark would represent a 60% fall in the ETF.

WisdomTree said in a statement: “The purpose of this provision 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.”

The firm added the payment is expected to be made to investors on or around 28 April.

The closure comes after oil prices turned negative for the first time in history with West Texas Intermediate plummeting to as low as $-40 a barrel on Monday.

WTI subsequently rebounded to trade just above $0 a barrel. As 3OIS is a triple leverage short product, this jump is likely what will have triggered the termination notice.

The news comes a month after the firm terminated two triple leveraged oil ETPs, the WisdomTree WTI Crude Oil 3x Daily Leveraged (3OIL) and the WisdomTree Brent Crude Oil 3x Daily Leveraged (3BRL) ETPs on 9 March, following a severe drop in oil prices after OPEC and Russia failed to agree production cuts.

Oil ETPs have gone through a rocky two months amid violent swings in prices. The world’s largest oil ETF, the $4.3bn United States Oil Fund (USO) suspended creations of new shares on Tuesday following further demand for exposure to oil amid tanking prices.

This means no new shares can be created in the primary market however USO can continue trading in secondary markets such as exchanges.

USO, which saw $1.6bn inflows last week prior to the historic collapse in oil prices, filed with the Securities and Exchange Commission to move 20% of its contracts to the second-traded month, in a move to try and ensure it does not hit zero.

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