Creations Of Egypt ETF ‘EGPT’ Suspended

January 31, 2011

Political upheaval in Egypt leads Van Eck to halt creations in its Egypt ETF.

 

Van Eck Global, the exchange-traded fund sponsor behind the Market Vectors Egypt Index ETF (NYSEArca: EGPT), halted creations in the fund Monday due to the political upheaval in Egypt that has caused Egypt’s stock exchange to be closed since Thursday. The fund has lost more than 18 percent of its value in the past month, but bounced almost 9 percent higher today.

“This follows the firm’s normal policy of suspending creation orders when the underlying market is closed for an extended period thereby helping to prevent the costs of creation activity to be borne by existing shareholders,” the New York-based firm said in a press release. It said the suspension will continue for an “undetermined” period.

However, Van Eck also said it will continue to accept redemption orders for EGPT, as described in its prospectus. The fund is designed largely with a cash creation and redemption mechanism because of the relatively illiquid Egyptian securities in the index. But about one-fourth of the fund relies on in-kind creation and redemption, because three of the index’s 28 stocks are traded in London and a fourth trades in Canada, Adam Phillips, a managing director at Van Eck, said in a telephone interview.

Street demonstrations against President Hosni Mubarak and his nearly 30-year rule are now in their seventh day in cities around the North African country. The stock market is always closed on Fridays in Egypt, but did not reopen for business on Sunday or Monday. The fund, which launched in February 2010, had $11.7 million in assets as of Jan. 28.

“Like the rest of the world, we waited to see if the stock market would open there on Sunday, and it did not. Then we waited to see if it would open on Monday and it did not,” Phillips said, adding that at that time, Van Eck decided to halt creations. “In general, we try to do our best to satisfy redemptions, though we have to continually evaluate that process and mechanism.”

Bidding EGPT Higher

While redemptions remained technically possible, trading in EGPT in the secondary on Monday suggested the ETF’s redemption mechanism was a long way from being triggered.

Ed Lopez, a marketing director at Van Eck, stressed that point in the same telephone interview with Phillips, saying that redemptions would occur in the primary market between authorized participants, market makers and fund sponsors, and that all the action in the ETF was happening in the secondary market.

“As far as individual investors are concerned, they can buy or sell as long as that market’s being made,” Lopez said.

Indeed, EGPT last traded as high as $17.50, or 7.9 percent higher, at 4 p.m. Eastern time, according to data on Yahoo Finance. Its bid/ask spread was 5 cents, with sellers showing 200 shares at $17.50 and buyers looking for 100 shares at $17.45, according to the website.

 

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