Unfortunately, the list that the SEC publishes daily on failed trades for all securities doesn’t capture this important distinction for ETFs. As a result, ETFs are often cited on the fail list more frequently than other securities. It doesn’t mean that ETF trades fail more frequently; it simply means they may settle outside of the traditional 3-day cycle (and still inside the window that is permitted by existing regulations for authorized participants).
As a result, the higher instance of reported fails for ETFs may not reflect actual failures at all.
BlackRock has found no trading irregularities that suggest investors are at risk due to failed ETF trades in the secondary market. And in our experience the occurrence of TRUE failed trades by authorized participants (where they’ve exceeded their permitted 6-day window to settle a trade) is virtually non-existent.
We don’t believe that SEC data on ETF failed trades indicates a flaw in the ETF structure or risk for ETF investors. But, as a company, we fundamentally believe in making investing clear and transparent for investors. Better transparency into the nature of failed trades on the daily list could help investors understand failed trades of all kinds. Especially because, in most cases, “failed” ETF trades aren’t failures at all.
Joseph Cavatoni, Managing Director, is a member of the iShares Group within the Global Client Group. He is responsible for the management of all iShares Capital Markets relationships for the Americas region, which includes the US, Canada and Latin America.