Page after page of subpenny trades being reported on ‘Form-T’—the manner in which off-market high-frequency trades get reported.
What’s happening here is the seedy underbelly of the industry. Somewhere in New Jersey, perhaps, there are algorithms sniping each other over an ETN that frankly shouldn’t even exist. My guess is that these HFT algos don’t even recognize that EEH is an ETF, or that a thing such as fair value even exists. They’re just looking for patterns and pouncing on anything that moves. Miniscule, million-dollar ETNs like EEH are enormously susceptible to this. But because nobody’s minding the store, nobody’s going to complain.
If this kind of insanity were happening to a microcap stock, most likely the chief financial officer of the company would get on the phone and halt the trading in his own shares. But there’s no CFO for EEH. Not only is nobody home, the lights aren’t really—if we’re being honest—even on.
A Modest Proposal
So here’s my question: When does the NYSE end up being the Boy Scout here?
This is clearly a security that isn’t functional. No rational investor, or even nonmechanical trader, would really look twice at it. But because (I’m guessing) the requirement for trading under a dollar isn’t being met, there’s no automatic mechanism to kick this thing out of the public markets once and for all. Shouldn’t the host of the party tell the drunk guests when it’s time to call a cab and go home?
The role of exchanges is to provide orderly markets for the allocation of scarce capital. I have no idea what the heck is going on in EEH, but I’m darn sure it’s not that.
At the time this article was written, the author considered EEH the worst ETF in the world, and thus, of course, did not own it. You can reach Dave Nadig at [email protected], or on Twitter @DaveNadig. Oh, if you’re the one at Merrill who owns these things, would love your phone number! We’ve been trying to reach you for years!