Cornerstone Research assisted a financial institution with its internal investigation into trading in ETF shares by affiliated parties.
Cornerstone Research was retained by counsel for a financial institution to assist with an internal investigation into trading in exchange-traded fund (ETF) shares by affiliated parties (affiliated trades).
We examined whether certain affiliated trades may have been motivated by the desire to manipulate the reported closing price for the ETF shares on certain dates. We researched the closing price reporting rules of different exchanges and data vendors and studied the pricing of the affiliated trades relative to market quotes as well as the intraday indicative values at the time of the trade. We analyzed whether the affiliated trades impacted the closing price of the funds relative to the net asset value (NAV).
For certain affiliated trades, we compared the relative economics of purchasing the ETF shares in the open market versus having an authorized participant (AP) create the shares.
We presented our findings to the ETF’s board.