None of these companies is well known for playing these roles in the ETF market. Wedbush’s experience with securities lending -- whereby a fund loans out some of its holdings to generate additional revenue -- was one reason it got the job, Masucci said.
Information Gap
The process of creation and redemption helps keep the price of an ETF in line with the value of its underlying stocks. If a fund is selling for more than its underlying securities, traders can buy the securities and deliver them to the ETF’s authorized participant in exchange for new fund shares that they can sell for a premium, pocketing the difference. In this arbitrage, they also gradually bring the fund’s price back in line with its underlying value.
Adding to the uncertainty for banks and other traders is that subsequent to the switch the National Securities Clearing Corp.—which most equity ETFs use to communicate with the market—hasn’t published MJ’s holdings or the stocks its managers will accept in return for creating new shares, three people familiar with the matter said.
The NSCC relies on agents of the fund -- usually the custodian or transfer agent -- to send this information, which it then distributes to traders.
In the case of MJ, however, the fund’s holdings are available on its website, with large investors advised to contact ETFMG’s trade desk. Creation and redemption orders are placed through Bloomberg LP, using a tool called BSKT, the fund’s website says.
Jim Binder, a spokesman for the NSCC, said the organization does not publicly disclose activity around specific securities and directed questions to MJ’s issuer. Bloomberg LP, the parent of Bloomberg News, provides BSKT for the submission of creation and redemption orders to participating funds via the Bloomberg Terminal.
This article is provided by Bloomberg News.