Question on ETFs of other countries

[robbie380]

Quote from TheStudent:

This is incorrect.

ETFs are created when one submits a sufficiently large block of the underlying portfolio to a trust and the trust then turns around and issues ETF units back.

Those units then get traded.

There are no rules that say if you own the ETF you cannot trade the underlying. To the contrary - one MUST be allowed to have positions in both for the product to succeed.

Without arbitrage, the faith of the general public that the ETF will perform in line with the underlying will be rightly questioned and the product will fail.

i guess you have never seen INP. granted it is an ETN but it's close enough.

 

[TheStudent]

Quote from robbie380:

i guess you have never seen INP. granted it is an ETN but it's close enough.

How does this prove that it is illegal to hold simultaneous positions in the underlying of INP and the ETN?

Robbie's gratuitous comment reveals he is confusing the notion that the presence of arbitrage must mean that tracking error cannot exist.

He forgets that while arbitrage can stop tracking errors from trading, it cannot prevent tracking errors from new legislation.

INP turned out to be a backdoor for US investors to own India after India shut down foreign ownership of its shares. Hence INP traded at a premium for it's scarcity value. Thereafter that premium decayed erratically .... all of which created the tracking error that Robbie has unhelpfully pointed out.

 

[robbie380]

Quote from TheStudent:

How does this prove that it is illegal to hold simultaneous positions in the underlying of INP and the ETN?

Robbie's gratuitous comment reveals he is confusing the notion that the presence of arbitrage must mean that tracking error cannot exist.

He forgets that while arbitrage can stop tracking errors from trading, it cannot prevent tracking errors from new legislation.

INP turned out to be a backdoor for US investors to own India after India shut down foreign ownership of its shares. Hence INP traded at a premium for it's scarcity value. Thereafter that premium decayed erratically .... all of which created the tracking error that Robbie has unhelpfully pointed out.

egads.....all aboard the bitch train!

i don't think i ever said it was illegal to hold underlying securities when holding the etf. all i was pointing out is that major discrepancies between NAV and trading price can occur. i pointed out INP because the premium was so insane for awhile. i think it got up to like 20 points before it came back, but i think a good amount of that up move was a short squeeze from people hoping INP would start pulling back to it's NAV. india kept going up and the spread kept getting wider. eventually it became very hard to get any INP short as it got further and further away from it's NAV. i remember the trading at the top was very panicked (like a short squeeze) so clearly people were getting squeezed out of their short position.

since you are so sensitive i felt like i had to explain why i believe it was a short squeeze and not this "scarcity" premium you are talking about.

anyhow, UCR and DCR is another good one but those 2 pretty much became mispriced options after their termination trigger hit.