The article went on to say that Thursday’s wave of selling caused disruptions in the plumbing behind several ETFs.
“Citigroup stopped accepting orders to redeem underlying assets from ETF issuers, after one trading desk reached its allocated risk limits,” the FT reported.
This part of the report is troubling and we plan on doing more reporting to find out what happened with Citi and how the ETF market was affected.
Finally, the article said State Street on Thursday stopped accepting cash redemption orders for municipal bond products from dealers. It’s not clear if this was related to the Citi news.
It appears that at least one muni bond ETF managed by State Street halted cash redemptions although in-kind redemptions continued.
The bottom line is that the roughly $1.5 trillion U.S. ETF business is having a growing influence in financial markets. Any glitches in the financial products will draw scrutiny as investors increasingly worry about the integrity of market structure and the impact of high frequency trading. This is also as it should be.
Story updated with new headline. Also updates Morningstar analyst title.
Full disclosure: Tom Lydon’s clients own EEM.