Moscow’s market is closed, but U.S.-based Russian ETFs continue to trade stateside
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Traders in the NYSE Floor, February 25, 2022.
Source: NYSE
The NYSE, Nasdaq and Nasdaq today announced they will not allow trading to resume in certain Russian stocks which are listed on their respective exchanges.
Even more fascinating is the fact the Russian stock exchange in Moscow has been closed. However, U.S.-based Russian exchange traded funds trade in the U.S. today.
Five Russian ETFs trade in the U.S.A, but only two of them have substantial assets. VanEck Russia ETF(RSX) iShares MSCI Russia ETF(ERUS), which both track an index that measures the market cap of Russian securities.
The RSX has fallen nearly 30% and the ERUS dropped more than 18% today.
What can Russian ETFs do when the underlying securities don’t trade? Market participants calculate the value of theunderlying securities.
Harry Whitton of Old Mission Capital’s ETF sales trading, said to me that if futures are lower X, stocks could be expected down Y.
While this might seem odd trading, Whitton points to the fact that similar situations have been repeated before. Despite Greece being closed for six weeks a few years back, ETFs from Greece in the U.S. still traded. The prices of Greek stocks were almost identical to what ETFs traded them for when the Greek markets reopened.
This means that ETFs may be traded even if the underlying markets are closed.
Todd Rosenbluth from CFRA Research’s ETF- and mutual fund research told me that ETFs have become a proxy for the Greek markets.
It is possible that redemptions and creation might be an issue
ETFs cannot be created or redeemed. This could lead to potential problems. ETFs have this critical characteristic. ETFs can be redeemed or created by market participants based on customer demand.
Rosenbluth explained to me that some companies have stopped trading the securities. This limits your ability to redeem and create shares of ETFs. If you don’t have the ability to create new shares, then you will be a closed end fund. Funds will be traded at either a premium, or a discounted price [to the net asset value].”
Jan Van Eck (CEO of VanEck) stated that there are a number of sanctions that affect RSX. However, VanEck has not halted creates nor redeems. VanEck Russia ETF (RSX) is available from the company.
The Russian ETFs are currently trading at a significant discount to their NAV because the net asset value (or NAV) has been frozen.
ETFs attempt to calculate the Russian value of Russian securities with their underlying markets closed.
The Russian market is closed longer than NAV, which makes it more difficult to trade.
Note: Jan Van Eck, the CEO of VanEck who manages the VanEck Russia ETF (RSX), will be on CNBC’s Halftime Report today at 12:35 PM ET and on ETF Edge at 1 PM: ETFedge.cnbc.com.
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