The ETAF will execute creations daily, like ETFs, through in-kind baskets and issuing new shares to an Authorized Participant. However, there will be no daily redemptions available to any investors. Instead, APs will have to hold a hedge until the end of the week before arbitraging price discrepancies.
“It gives institutional investors an out,” Dave Nadig, Director of Exchange Traded Funds at FactSet, said in a note. “Should a major hedge fund or endowment decide to liquidate a position, this feature allows the institution to entirely bypass the trading floor, guaranteeing that it gets a ‘fair’ price for its shares, regardless of what the market impact of the transaction might be. In my opinion, this is a good thing and likely makes it easier for institutions to wade in on a less transparent product.”
There have been a handful of so-called non-transparent, ETF-like petitions set to SEC over recent years. For instance, Eaton Vance’s NextShares suite of exchange traded managed funds, or ETMFs, have already received SEC approval. Other structures, such as those from Precidian Investments, BlackRock, T. Rowe Price and Capital Group, are still waiting on regulatory approval.
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