The recent State Street Bank & Trust
] decision to ask institutional investors to bear the cost of fees when covering underlying securities, forced dealers to bear their own transaction costs, Barrons'
Brendan Conway writes. The State Street redemptions on municipal bond ETFs highlighted an issue: dealers and shareholders are often in conflict.
Yet, Conway says there is a potential problem. He worries that shutting down the cash-exchange option could result in fewer dealers, which could lead ETF shares to trade at prices that aren't close enough to the value of its underlying securities. Conway writes that the State Street muni-ETF redemption halt likely contributed to ETFs being traded at discounts and to smaller premiums, and most recently, big discounts.
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