Equalisation for funds generating interest?

GeoffTF

masonic said:

GeoffTF said:

masonic said:

Shares are created and cancelled through separate transactions with counterparties to avoid the ETF trading above or below NAV, but crucially shares can be valued and traded above or below NAV when this process becomes inefficient.

ETFs almost always have a significant discount/premium. You can see this on Trading View, e.g. for VEVE:

https://www.tradingview.com/symbols/LSE-VEVE/

I believe that the fund manager reports the premium/discount daily. I think I have seen it reported on RNS.

Currently -0.1% according to that page. Which is basically bid/offer spread, is it not?

Though for a fund like that which trades at times when underlying markets are closed, the true value of NAV must be unknown much of the time.

The discount/premium is not the same as the bid/offer spread. The discount/premium seems to be reported at the end of each trading day. It will be different during the next trading day. The FTSE Developed World Index is calculated in real time (search in Google for the Factsheet). I do not know how the valuation is done when some of the underlying markets are closed, but I expect that they use prices from the futures markets. If we had access to the real time data, we could calculate the discount/premium of the mid-market price of VEVE relative to the benchmark during trading, but there will also be tracking error. Authorised Participants will need these calculations to see whether the discount/premium is large enough for them to make an arbitrage profit.

GeoffTF

Here is a helpful link:

https://globalxetfs.eu/content/files/ETF-NAV-iNAV-and-Price-Explained.pdf

Hoenir

For the LSE off book trades must be reported within 3 minutes. For the NASDAQ it's 15 minutes. 

For those with the information there's the opportunity to arbitrage. 

GeoffTF

Hoenir said:

For the LSE off book trades must be reported within 3 minutes. For the NASDAQ it's 15 minutes. 

For those with the information there's the opportunity to arbitrage. 

You need to be an Authorised Participant to use the arbitrage mechanism described in section 5 of my last link. Authorised Participants are typically large investment banks.