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Broken Product Count Jumps To 39 With Deutsche Bank ETN Creation Suspensions

March 19th, 2013

Deutsche BankRon Rowland: Deutsche Bank (NYSE:DB) announced it will temporarily suspend creations of 26 exchange-traded notes (“ETNs”) after the close of trading on March 29, 2013 (sic).  DB apparently forgot March 29 is a market holiday, so the last day of “non-broken” status for these ETNs will actually be March 28.  The suspension affects 24 PowerShares DB ETNs and two ETNs marketed under the ELEMENTS brand.  This action brings the number of active listings with “broken product” status to 39.

The creation/redemption mechanism is the heart and soul of exchange traded products(“ETPs”).  It is what sets ETFs and ETNs apart from all other investment vehicles.  When that mechanism is not functioning properly, it destroys the ability of market makers and authorized participants to take advantage of arbitrage opportunities and keep the trading price close to the underlying net asset value (“NAV”).  The ETFs and ETNs become broken products.  In extreme cases, price premiums exceeding 1,000% can develop, which is what happened with the ELEMENTS MLCX Gold ETN.

More recent examples include the creation halts of JPMorgan Alerian MLP ETN (NYSEARCA:AMJ) and VelocityShares Daily 2x VIX Short-Term Futures ETN (NYSEARCA:TVIX).  Unfortunately, there is no easy way for the public to determine if an ETP is trading as a broken product prior to placing a trade.  Regulators have not acted on suggestions to add a suffix to the ticker symbol under such conditions.  As a result, most investors and traders are unable to identify the 13 other broken products currently trading unless they own the ETF Field Guide.

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Deutsche Bank claims the creation suspensions are temporary and related to a technical issue with a delay in filing its 2012 annual report.  The firm expects to lift the suspensions following the publication of its annual report and Form 20-F in mid-April 2013.

The 26 ETNs “temporarily” joining the broken product list are:

  1. PowerShares DB Base Metals Double Short ETN (BOM)
  2. PowerShares DB Base Metals Double Long ETN (BDD)
  3. PowerShares DB Base Metals Short ETN (BOS)
  4. PowerShares DB Base Metals Long ETN (BDG)
  5. PowerShares DB Crude Oil Double Short ETN (DTO)
  6. PowerShares DB Crude Oil Short ETN (SZO)
  7. PowerShares DB Crude Oil Long ETN (OLO)
  8. PowerShares DB Gold Double Short ETN (DZZ)
  9. PowerShares DB Gold Double Long ETN (DGP)
  10. PowerShares DB Gold Short ETN (DGZ)
  11. PowerShares DB US Inflation ETN (INFL)
  12. PowerShares DB US Deflation ETN (DEFL)
  13. PowerShares DB 3x Short 25+ Year Treasury Bond ETN (SBND)
  14. PowerShares DB 3x Long 25+ Year Treasury Bond ETN (LBND)
  15. PowerShares DB 3x Short US Dollar Index Futures ETN (UDNT)
  16. PowerShares DB 3x Long US Dollar Index Futures ETN (UUPT)
  17. PowerShares DB 3x Italian Treasury Bond Futures ETN (ITLT)
  18. PowerShares DB Italian Treasury Bond Futures ETN (ITLY)
  19. PowerShares DB 3x German Bund Futures ETN (BUNT)
  20. PowerShares DB German Bund Futures ETN (BUNL)
  21. PowerShares DB 3x Japanese Govt Bond Futures ETN (JGBT)
  22. PowerShares DB Japanese Govt Bond Futures ETN (JGBL)
  23. PowerShares DB 3x Inverse Japanese Govt Bond Futures ETN (JGBD)
  24. PowerShares DB Inverse Japanese Govt Bond Futures ETN (JGBS)
  25. ELEMENTS Dogs of the Dow DJ High Yield Select 10 Total Return ETN (DOD)
  26. ELEMENTS Morningstar Wide Moat Focus Total Return ETN (WMW)

Note: three of these products have Canadian listings with different ticker symbols and will also be affected (NYSE: DTO – TSX: DOE, NYSE: DZZ – TSX: DGJ, and NYSE: DGP – TSX: DGU).

Ron RowlandWritten By Ron Rowland From Invest With An Edge  Long AMJ.

Ron Rowland is the founder of Invest With An Edge and serves as the Executive Editor. He is also editor of AllStarInvestor.com and Chief InvestmentOfficer of Capital Cities Asset Management (www.ccam.com).  Quoted widely in the financial media, Ron is the industry go-to guy for sector rotation insight and investment strategies using ETFs and mutual funds.


NYSE:AMJ, NYSE:TVIX


 

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