The Perfect Monster ETF Trade Just Played Out

May 11, 2017

The Big Trade

Until 11:49 a.m. EST, exactly one share had traded hands. Then, boom, 15 million shares. It’s not often you see a tape like this (from the excellent Trillium Surveyor tool):

‘Gundlach Bet’

So, how does this happen? Well, obviously, this isn’t someone just dropping their $268 million buy order on the market. This is a worked trade.

Someone—a large institution obviously—is making the current “Jeff Gundlach Bet” by going all-in on high-growth emerging market companies. They decide they like this particular fund to use, and they call someone—maybe KCG, or Cantor or Susquehanna—and they negotiate the trade. (Note: Bloomberg thinks they know who made the trade, which was the "buy" end of a rotation reallocation.) 

While we don’t know the specifics here, most likely it involved some sort of cost-plus pricing. Since it takes some time to get the basket of securities here, as markets are closed, someone has to “wear” some risk. 

Either the liquidity provider offered the price of $17.14, believing they could buy what they need over night, or they spent the previous night buying securities ahead of this incoming trade, and worked up a price based on their actual costs for the underlying securities.

Regardless, the price is actually unique in that it’s a live, midday price on a bunch of closed securities. That intraday net asset value (iNav) line from the chart hovering around $16.96 is a fiction. While $17.14 seems like a big premium to pay over either the previous day’s NAV of 16.91 or the official NAV by the end of May 1, 16.95, it’s worth noting that it’s right in line with the next day’s NAV of $17.12.


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