September 17, 2008 at 11:00 am by Tom Lydon
The iShares line of exchange traded funds (ETFs) might be getting a bit of a headache from Barclays‘ acquisition of Lehman Brothers’ (LEH) banking division.
Barclays will take over the division for what amounts to a song in this day and age – just $250 million, report Joe Bel Bruno and Stephen Bernard for the Associated Press. Lehman filed for bankruptcy earlier this week after it was unable to find financing or fresh capital.
The sale to Barclays could be finalized within a matter of days.
ETF lawyers say that this sale could wind up being a pain for iShares, reports Ian Salisbury for Dow Jones Newswires. More than a dozen iShares track popular Lehman indexes, such as the $9.8 billion iShares Lehman Aggregate Bond Fund (AGG), which tracks the Lehman Brothers U.S. Aggregate Index.
The problem is that the Securities and Exchange Commission (SEC) has long prohibited firms from basing ETFs on benchmarks they own. The rule isn’t iron-tight, however.
WisdomTree owns indexes that serve as the basis for ETFs, but they were required to seek special permission and make concessions about how those indexes are run. For example, they have to disclose all rules that govern the indexes and any changes to those rules must be announced 60 days before they’re made.
One attorney says that Barclays might have an easier time convincing the SEC to grant it special permission, since the Lehman indexes are long-established and widely followed.
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