ProShare Advisors Suspends Issuance of 11 Derivative-Based ETFs

May 02, 2014 2:21 pm ET

May 2 (Bloomberg) -- ProShare Advisors LLC, the biggest U.S. provider of leveraged and inverse exchange-traded funds, suspended the creation of new shares in 11 funds pending unspecified changes to the products’ registration statement.

“The temporary suspension is due to a regulatory filing requirement that we expect will be resolved in the next few business days,” the Bethesda, Maryland-based company said today in a statement. Tyler Bradford, a spokesman for the firm at Hewes Communications Inc., declined to comment beyond the statement.

The suspension could result in “significant variation between the market price at which shares are traded and the shares’ net asset value,” the company said. ETFs create and redeem shares in transactions with market makers and other trading firms in response to demand, which keeps a fund’s share price closely in line with the value of its underlying holdings.

Redemptions involving the funds aren’t affected, according to ProShare, and the shares continue to trade. ETFs are bundles of securities whose shares trade like stocks on an exchange and usually track an equity, bond, commodity or currency index.

The affected ETFs hold $386 million in assets and include the $203 million ProShares Short VIX Short-Term Futures ETF, according to data compiled by Bloomberg. The funds use derivatives and seek to offer investors multiple or inverse returns on an underlying index, such as the VIX, which measures expected equity-market volatility.

The changes to the funds’ registration statement must be approved by the National Futures Association before creations resume, the company said in the statement.

Market Share

ProShares manages about $26 billion in leveraged and inverse ETFs in the U.S., or about 65 percent of the market for such ETFs, according to data compiled by Bloomberg.

Leveraged and inverse ETFs have been the subject of past controversy. Regulators warned investors and financial advisers in 2009 that the funds may be too complex for most individual investors. In May 2012, the Financial Industry Regulatory Authority, the brokerage industry’s self-funded regulator, fined Wells Fargo & Co., Citigroup Inc., Morgan Stanley and UBS AG a combined $9.1 million for failing to adequately supervise the sale of leveraged and inverse ETFs to clients.