4. Capital Markets
Portfolio transparency, manifested by publication prior to each trading day of the creation basket securities (or PCF file), is a key cornerstone for the success of ETFs.
Why? Because through the published basket, market makers and APs know exactly what stock specific risks they are exposed to when they post a bid/offer price, when they hedge, when they undertake arbitrage and when they create and redeem. All translating into efficient and liquid markets with accurate pricing and tight spreads in all market conditions.
A Shielded Alpha℠ ETF Creation Basket holds 100% of the portfolio names (but not their correct % weightings), this is a highly transparent structure (and certainly not a non-transparent ETF).
Because of this relative transparency, market makers and APs know the risks they are exposed to at all times, enabling them to hedge appropriately and conduct efficient bona fide arbitrage and make markets with tight spreads versus competing semi or non-transparent structures. Transparency also means they have immediate knowledge of any announced trading halts of securities in the ETF portfolio; no other competing structure provides this lens to the capital markets.
No different than with a fully transparent actively managed ETF, market makers and APs can use the published Shielded Alpha℠ Creation Basket to generate sub-second, high frequency intraday pricing for the basket. They can use last sale or midpoint pricing or a combination thereof for highly accurate and fresh prices. They don't have to rely on a stale 1-second verified indicative intraday pricing signal from third party calculation agents as their primary (and only) pricing signal.
With a Shielded Alpha℠ Creation Basket, APs can transact directly with the ETF during creations and redemptions, thereby transacting efficiently in the capital markets as they do best. There's no requirement for a third party AP Representative account and no need for an ETF to enter into multiple non-disclosure agreements with third party pricing and calculation agents.
Why? Because through the published basket, market makers and APs know exactly what stock specific risks they are exposed to when they post a bid/offer price, when they hedge, when they undertake arbitrage and when they create and redeem. All translating into efficient and liquid markets with accurate pricing and tight spreads in all market conditions.
A Shielded Alpha℠ ETF Creation Basket holds 100% of the portfolio names (but not their correct % weightings), this is a highly transparent structure (and certainly not a non-transparent ETF).
Because of this relative transparency, market makers and APs know the risks they are exposed to at all times, enabling them to hedge appropriately and conduct efficient bona fide arbitrage and make markets with tight spreads versus competing semi or non-transparent structures. Transparency also means they have immediate knowledge of any announced trading halts of securities in the ETF portfolio; no other competing structure provides this lens to the capital markets.
No different than with a fully transparent actively managed ETF, market makers and APs can use the published Shielded Alpha℠ Creation Basket to generate sub-second, high frequency intraday pricing for the basket. They can use last sale or midpoint pricing or a combination thereof for highly accurate and fresh prices. They don't have to rely on a stale 1-second verified indicative intraday pricing signal from third party calculation agents as their primary (and only) pricing signal.
With a Shielded Alpha℠ Creation Basket, APs can transact directly with the ETF during creations and redemptions, thereby transacting efficiently in the capital markets as they do best. There's no requirement for a third party AP Representative account and no need for an ETF to enter into multiple non-disclosure agreements with third party pricing and calculation agents.