ProShares, the largest provider of leveraged and inverse
, is expected to list on the BATS exchange Thursday a
merger-arbitrage ETF that would go head-to-head with an IndexIQ
The ProShares Merger ETF (BATS:MRGR) will track the S&P
Merger Arbitrage Index and capture the spread between the stock
price of a target company at the time a merger-and-acquisition deal
is announced, and the price that the acquiring company will pay,
according to the fund's prospectus.
That spread exists because of uncertainty that the deal will
actually take place-how much risk is involved in the transaction
and how long it takes to conclude it directly impact how wide that
spread can become. At the end of the day, MRGR gains when, in a
closing deal, the price of the target company nears the proposed
acquisition price, the filing said.
The strategy is akin to what IndexIQ's IQ ARB Merger Arbitrage
ETF (NYSEArca:MNA) sets out to do, and is the latest example of ETF
providers getting creative to develop products that tap into niche
segments in an effort to find performance in periods of lackluster
ProShares' MRGR takes long positions in the company targeted for
a takeover and shorts the acquiring company when the deal involves
an exchange of that company's stock. That short hedge is an effort
to minimize the impact a drop in value in those shares would have
on the spread, the filing said.
By comparison, IndexIQ's MNA buys stocks of companies that are
faced with a takeover while shorting exposure to the broad global
market in an attempt to capture M&A-related returns.
The fund, which pursues the same strategy a classic M&A
hedge fund would and tracks a proprietary index, has gathered
little more than $13.5 million since it came to market in 2009.
MRGR will cost a total of 0.75 percent in annual fees after
waivers and reimbursements totaling 1.36 percent are taken into
account. By comparison, MNA costs 0.76 percent, according to data
on IndexIQ's website.
Joining iShares On The BATS Board
MRGR marks ProShares' first listing with Kansas City-based BATS
Exchange, only the second ETF issuer to list on the midwestern
board. The exchange said it has already petitioned to list another
three ProShares ETFs in 2013.
San Francisco-based iShares was the first issuer to list on
BATS-its first ETF went live there in January-and has currently 16
ETFs listed there, nine of which are single-country funds and the
remainder are fixed-income strategies.
BATS has worked to distinguish itself from its competitors by
focusing on taking special care of ETF providers, Joe Ratterman,
chairman and chief executive officer of BATS, has said.
"iShares' decision to list on BATS underscores the commitment
that we are placing on ensuring our market is issuer-focused and
concentrates on market quality," Ratterman said at the time iShares
listed its first ETF there.
Part of that effort has been the implementation of the BATS
Competitive Liquidity Provider Program, designed to keep market
makers in the center of trading traffic, even when markets turn
The rewards-based program pays daily incentives to market
markets for increasing liquidity and keeping spreads tight on all
ETFs listed on the exchange.
"The BATS Competitive Liquidity Provider program has proven to
be effective at incenting tighter spreads and more size at the
national best bid and offer (NBBO) for issues listed at BATS, which
in turn lowers the cost of trading for institutional and retail
investors," Ratterman said in a press release issued today.
"We look forward to implementing this program for the ProShares
Merger ETF," he said.
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