When youre No. 2 in ETF trading, you have to try
Nasdaq, as the No. 2 marketplace for ETFs behind the New
York Stock Exchanges electronic platform, NYSE Arca, is
known for putting more ideas out there, and right
now, its got a proposal pending with the SEC for a
new type of order for U.S. equity ETFs called an iNAV
Pegged Order. If the SEC gives it the nod, it will be a
first of its kind.
With U.S. equity ETFs, their iNAVs, or intraday net asset
values, are automatically adjusted every 15 seconds based on
the current market value of the stocks in their portfolios.
What the Nasdaq is proposing is that investors be allowed to
put in orders pegged to a U.S. equity ETFs
most recent iNAV. As the iNAV changes, so move the iNAV
Pegged Orders, the Nasdaq stated in its SEC filing, made
on October 12. Nasdaq also noted a Pegged Order may have
a limit price beyond which the order shall not be
And the point of instituting this order type, Nasdaq said in
its pitch to the SEC, is that relative to the current
intraday order entry/execution order types, the iNAV Pegged
Order type would allow certainty of execution with a greater
correlation to the ETFs fair value for those seeking to
invest on a more informed basis.
I think its a good idea, says Michael
Rawson, an ETF analyst at Morningstar in Chicago.
Its like a limit order, but pegged to the current
iNAV of a fund, and that makes sense, he says.
But Dave Nadig, the director of research at IndexUniverse in
San Francisco, sees a number of potential problems. I
think its got its heart in the right place, but the
devils in the execution, he says.
First of all, it applies only to the ETFs that are strictly
invested in U.S. equities because those are the only ones where
its possible to get an intraday NAV that is close
to being accurate, he says. Therefore, the ETFs that hold
some mix of U.S. and international stocks, or stocks and bonds,
would be excluded, and that narrows the list of eligible ETFs
to a few hundred, he notes.