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Rating:Nasdaq and the NYSE Prepare to Cancel Unusual ETF Trades From Thursday Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, May 10, 2010

Nasdaq and the NYSE Prepare to Cancel Unusual ETF Trades From Thursday

News summary by MFWire's editors

Even as stock prices dropped dramatically Thursday afternoon and then partially recovered, a number of exchange-traded funds were briefly plagued by extremely abnormal pricing. In fact, IndexUniverse's Matt Hougan, Olivier Ludwig and Dave Nadig report that ETFs and exchange-traded notes make up about two-thirds of the securities for which Nasdaq and the New York Stock Exchange will cancel some Thursday trades (193 our of 281 for Nasdaq and 111 out of 173 for the NYSE). Offerings from Claymore, Direxion, Fidelity, iShares, PowerShares, ProShares, Rydex, Schwab, State Street Global Advisors, Van Eck, Vanguard and WisdomTree are all on that list.

How bad did it get? IndexUniverse reports that, among others, the Rydex S&P Equal Weight ETF saw its share price briefly dip below a penny. The Wall Street Journal's Ian Salisbury reports that the iShares Russell 100 Growth ETF dipped briefly to $0.01 per share, while the Vanguard Mid Cap ETF traded at least once for $0.10. And in a video interview, Morningstar ETF research director Scott Burns noted that Vanguard Total World dipped to one cent, too.

What happened? Salisbury reports that, according to BlackRock (parent of iShares) and Vanguard, ETF providers' computer programs responded to other outlandish trades Thursday afternoon by massively widening the bid-ask spread on some ETFs (instead of simply shutting down trading, since "market makers are required to offer prices at all times"). In turn, it appears that some traders had automated orders to buy at the "best available market price," which, thanks to some very wide ETF bid-ask spreads in a market freefall, turned out to be very low.

 

Edited by: Neil Anderson, Managing Editor


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