Digging Deeper Into Nasdaq’s ETF Trading Proposal

November 2nd at 7:11am by Tom Lydon

The Nasdaq OMX Group has offered a way to reduce the costs of poor trades on exchange traded funds through a new “INAV Peg Order,” but some argue that it will only lead to more problems.

Nasdaq filed a proposal for the INAV Peg Orders that would allow new trade orders on domestic equity ETFs based on the indicative net asset value of the funds, instead of the end-of-day net asset value, which is calculated at the previous close. ETF providers disclose the INAV every 15 seconds. [Nasdaq Proposes ETF Trading System]

The proposed order was intended to provide greater transparency into the underlying holdings and and help protect investors against unintended costs in normal trades.

However, David Nadig, director of research at IndexUniverse LLC, argues that the new order would provide “more of a solution in search of a problem,” report John McCrank and Jessica Toonkel for Reuters.

“With this kind of order you are effectively saying you only want to get executed at INAV, which is like saying you want to get executed inside the spread,” Nadig said in the Reuters article. “But that might never happen and that means there is a real risk of the order not getting filled.”

Moreover, others feel that the INAV quotes may not always be accurate since third-parties calculate the INAV quotes, which are then given to the exchange.

“Basing your investment decision on a third-party valuation service always makes me nervous,” Eric Pollackov, managing director of ETFs at Schwab, said in the article.

For more information on the ETF industry, visit our current affairs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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