FAS / FAZ (Direxion ETFs) reverse split discussion

Discussion in 'ETFs' started by m22au, Jun 23, 2009.

  1. m22au


  2. S2007S


    I actually heard news of the 1 for 2 reverse split on MWN last night and was quite surprised to see that one in particular see the reverse split, I was going to call them today and ask about the reverse split on MWN but didnt get the chance. The stock trades in the low 30's so to see a reverse split on this one is quite interesting.

    As for FAS and FAZ, talk of reverse splits have come and go on a daily basis, I remember when FAS was trading under $3.00 back in March, I had called them up asking about a reverse split and they mentioned that if proshares were going to do a reverse split on UYG under $2.00 that they would have carried out a reverse split at the time on FAS, how true this is I have no idea.
  3. S2007S


    After reading these articles I cannot really gather much information as to why they need to do a reverse split on these ETFs....

    Below is what was written in the article, says that the triple leverage financial etfs are more volatile because of derivatives and because there are too many variations in the NAV???

    Arent they just volatile because of the fact they are a "TRIPLE" etfs. If this were the case in the beginning wouldnt the SEC not give Direxion the go ahead with these etfs.

    These other two ETF’s track the Russell 1000 Financial Services Index with triple leverage, but they are much more volatile because of the derivatives and because there are too many variations in the NAV versus the actual share price at certain times of the day. The low share prices also allow even the smallest of fast money traders to get in and out with too little skin in the game.

    Goes on to say:

    Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and The Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) are both prime examples of ETFs which skew total daily exchange trading volume numbers because of low share prices today and massive trading volume. This is not meant to pick on the fund groups because they created trading vehicles which they did not expect to see some of these moves. There are many more ETFs and ETNs to consider here.
  4. Ghostdog


    This was an email I sent out to some people that asked me about FAZ. I am just going to submit it as is.

    Hello All,

    After doing a little reaseach and contacting the fund managers over at Direxion this is what I have found out.

    The article below isnt about FAZ but it is on an ETF that Direxion runs (they run FAZ as well as others). They are doing the revese split because volume is dead on MWN... Usually what happens if the managers are, cough unethical, is they jack the price so they have something to fold/crush in the ETF (higher price and less outstanding shares easier to push around and farther to drop) FAZ's volume is 200 Million a day so I do not think that would be a reason to collapse it so long as the market does not have a big rally.

    I spoke with someone over there at Direxion today and they told me that there has been "talk" of doing the same with FAZ but nothing in stone and states that they will post anything of consequence on their website before the market closes. He mentioned that the NYSE & SEC is coming down on market makers and sited that as one of the reasons for the reverse split on MWN. He also, said that unlike MWN, FAZ has a lot of institutional customers where MWN was mainly a retail ETF. Anyway, if they follow suit on FAZ as well as others they control, my guess is that is to primariliy get it up above 5.00 to urge the fund managers in, because there are strict rules on purchasing securities below 5.00, plus I do think they are getting pressure from the NYSE with it being so low that they cannot realistically mirror the market on a market rally, because it would have to go below zero.... I also think they may do it to compete directly with RFN although the person I talked to said RFN wasnt the reason. He later complimented me on my market acumen which of course makes me entirely suspicious that perhaps I was onto something

    On the other hand, a reverse split is a double edged sword. If its up at the 10 buck area they can potentially open themselves up to fund managers who are looking for a hedge but of course if you bought 1000 at 5.00, why would you want to own 500 at 10.00. A recomended approach for those who curretly have a position but are not savvy traders may be to watch the website to see if FAZ follows MWN and if so, exit all positions by the end of day and wait a few days to see how it reacts... in other words is there any funny business going on. I may be being paranoid but Id rather share my paranoia then infect you with my idealism since I was the one that got you in at 4.30.

    I also see the broad market with one more leg up before we go to hell so that will be the true test to see if FAZ can withhold a market rally without reverse splitting.

    Either way, I wanted to mention this to those out there that may have a position. It may or may not being anything to be alarmed about at this time.... That being said, this is the "business risk" I talked about with all new ETF's

  5. m22au


  6. Learyfan


    Hey guys, I just signed up here after doing a search on this. I thought you guys might be able to help.

    Does anyone know if this reverse split will effect the volatility of FAS and FAZ? Or will they end up like the other Direxion funds? Thank you.