The first thing to look at is the green line—again, that’s the shares outstanding in EEH. Last fall, around Sept. 23, someone rolled up 94,470 shares and handed them back to our friends in Sweden. It would have to be someone with a special relationship, because according to the pricing supplements, blocks need to be worth more than $5 million to be eligible for repurchase, but since there was only $1.4 million of EEH in existence at the time, someone was feeling charitable.
And charity it would be. At the time of the big redemption, EEH was trading—a word I’ll use loosely to describe the few hundred shares that would occasionally cross the tape—at a slight discount. So, theoretically, someone could have been slowly buying at a discount and then redeemed at fair value. I remember thinking at the time: “Finally, someone will put this thing out of its misery.”
But then we saw a very slight increase in volume—and a huge premium appeared.
That black line is the end-of-day pricing in the open market. The blue, boring one is what EEH was actually worth. Big premiums on small ETFs with no liquidity aren’t that uncommon. What is uncommon is that someone—and it really would have to have been Merrill or someone who actually knows who to call at Merrill—had the gall to then issue a new 50,000 share block of EEH.
Those shares dribbled into the market in October and November, collapsing the premium. Remember that every trade has two sides: Someone out there was buying these newly minted shares at ridiculous prices—hundreds of percent over fair value.
And now it’s just silly …
Things cooled off for a while, until the last few weeks, when the pattern seems to have repeated. This time, however, volumes have been off the charts—in relative terms. On the peak-volume day of Aug. 25, when more than 40,000 shares changed hands, this is what the tape looks like: