Direxion Reverse Splits Two Financial ETFs


SAN DIEGO (ETFguide.com) - Direxion has just executed reverse share splits on two their most popular leveraged ETFs. Yesterday, the Direxion Daily Financial Bull 3x Shares (NYSEArca: FAS) had a 1-for-5 reverse split and the Direxion Daily Financial Bear 3x Shares (NYSEArca: FAZ) had a 1-for-10 reverse split. Shares in both FAS and FAZ began trading today on a split-adjusted basis.

How did this particular reverse share split work?

Every five shares of FAS were exchanged for one share and every ten shares of FAZ were exchanged for one share. For example, an owner with 100 shares of FAS before the split would now have 20 shares after the split. In the case of FAZ, an owner of 100 pre-split shares would now have 10 post split shares.

As a result of the reverse split, some investors may wind up with fractional shares of FAS or FAZ. Because fractional shares do not trade on NYSE Arca, the fractional shares were automatically redeemed for cash at each respective fund's net asset value ( NAV ) at the end of trading on July 8th.

According to Direxion, the redemption of fractional shares could cause a shareholder to realize a capital gain or loss. However, the reverse split itself will not cause a taxable event for FAS or FAZ owners and there's no transaction fee charged for the redemption.

The reverse share splits on FAS and FAZ will facilitate more economical trading in their shares. The share prices of both funds fell to such low levels, the cost of bid/ask spreads was becoming a financialimpediment.

A reverse share split inflates a fund's share price but doesn't alter a fund's total market value.

With around $1.7 billion invested in FAS and $1.5 billion in FAZ both sides of the long/short trade are almost evenly matched.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: NAV



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