“The SEC’s decision to widen its review came after a sizable trade in a large, liquid ETF failed to settle within the four days,” Reuters reported. “The specific ETF is not known.”
There was overlap between some of the most-shorted ETFs and reported settlement fails in 2011, according to the story.
However, the ETF industry says the data on ETF trade failures “does not account for the fact that market-makers, the firms that do the bulk of ETF trading, have seven days to clear trades.”
“It is not yet clear how this affects retail investors,” Jessica Toonkel writes in a separate Reuters report. “The concern is that the web of IOUs going on behind the scenes could affect how companies process the trades or put pressure on the underlying stocks, particularly in less-liquid ETFs.”
