Shares of the world's first currency ETF, the Euro Currency Trust (FXE) have begun trading on the New York Stock exchange. Rydex Investments is sponsor of the ETF, shares of which will be know as Euro CurrencyShares. The new currency ETF, the first of its kind in the world, will track the price of euros in dollars, and will trade at approximately the euro/dollar currency rate multiplied by 100. The morning of the launch that rate was up over a cent to $1.195 (so that shares of FXE were trading at about $119.50) The price has since risen with the euro to over $120 per share.
The product was launched remarkably quickly for an ETF - within 6 months of its initial exceptive filing with the SEC. Part of the reason the product was approved so quickly is that its structure is very straightforward, with the fund essentially holding cash in euros (and investors making interest at euro rates on their funds. The fund is scheduled to earn EONIA rate (Euro Overnight Index Average) less .27% and the 0.40% expense ratio. This means that the fund currently will yield it's investors 1.58% all in expenses plus whatever the currency movement is in the in the euro/dollar rate.
The authorized participants who can create and redeems shares in baskets include Bear Hunter Structured Products, LLC, Bear, Stearns & Co., Lehman Brothers, Inc., and UBS Securities LLC. Bear Hunter Structured Products LLC was also one of the driving forces behind its development is Bear Hunter Structured Products, which will track the price of the euro in U.S. dollars.
The Trust has registered 17,000,000 Euro CurrencyShares, with a proposed maximum aggregate offering price is approximately $2.0 billion.
The sponsor of the Euro Currency Trust is Rydex Specialized Products LLC, d/b/a Rydex Investments. The distributor of the Euro CurrencyShares is Rydex Distributors, Inc. The Bank of New York is the trustee of the Trust and JPMorgan Chase Bank, N.A., London branch, is the depository of the Trust.
Each share of the ETF will represent 100 euros plus accrued interest, according to Rydex, the fund's sponsor, which says the fund is eligible for short sale and margin purchases. ETFs are listed on exchanges and trade throughout the day like individual securities.
The amount of the annual expense ratio is 0.4%. The monthly percentage of that total amount is withdrawn monthly from the fund. If that amount is not enough (the interest rate is below the 0.4% expense ratio), then the sponsor can withdraw deposited euros as needed, which could diminish the amount of euros each ETF share represents, according to the prospectus. As mentioned above, the current yield on the fund after deduction of all expensies is 1.58%
Of course, as with any stock or ETF, investors also pay broker commissions to buy or sell shares of the fund.
JPMorgan Chase will maintain two euro-denominated accounts in London: a primary account which will earn interest, and a secondary account which will not earn interest. JPMorgan will not be paid a fee for its services to the ETF. Instead, "it will generate income or loss based on its ability to earn a 'spread' or 'margin' over the interest it pays to the Trust by using the Trust's euro to make loans or in other banking operations," according to the prospectus, per John Spence's recent article on www.marketwatch.com.
Therefore, investors "should not expect that the Trust will be paid the best available interest rate at any time or over time."
U.S. shareholders are not insured against loss by the Federal Deposit Insurance Corp. (FDIC), according to documents filed with the Securities and Exchange Commission.
According to the prospectus, the ETF's net asset value (NAV) is based on the Federal Reserve Bank of New York Noon Buying Rate and expressed in U.S. dollars. ETF shares can trade above or below the NAV based on market supply and demand.
After three days of trading, the Euro Currency Trust, likely benefiting to some degree from a rising euro, the fund (currently valued at about $120 per share) had garnered about $100 million in assets.
When Rydex filed the euro ETF earlier this year, and as far as IndexUniverse.com knows, the fund represents the quickest a new type of ETF has ever been approved by the SEC and come to market. Rydex Investments manages about $14 billion in assets and is best known for its family of leveraged and inverse index funds designed for short-term traders. The company also runs two ETFs, the Rydex S&P Equal Weight and the Russell Top 50.
For the NYSE, Monday's launch represents the latest in a string of recent victories in attracting ETF listing. In addition to winning recent high-profile listings including the FTSE/Xinhua iShares, both gold ETFs, and the FTSE/RAFI PowerShares, the Big Board also recently managed to convince iShares to move all of their ETF listings from the American Stock Exchange.
More details about this trust are forthcoming on IndexUniverse.com. In the meantime, readers can click here to view the prospectus.