At least on a temporary basis because WisdomTree Commodity Services LLC (WCS) has temporarily suspended the ability of authorized participants to buy new creation baskets in the WisdomTree Continuous Commodity Index Fund (NYSEArca: GCC).
Large traders dealing in big block orders may consider consulting with a specialized liquidity provider whom benefits from an Authorized Participant contact to execute ETF trades. APs keep trades fluid by creating and redeeming ETF shares in the primary market and help limit a large investor’s impact on an ETF’s price.
“The temporary suspension of the sale of GCC Creation Baskets to Authorized Participants is not expected to affect the ability of retail and institutional investors to trade in shares of GCC on stock exchanges,” according to a WCS statement.
However, during the suspension, investors looking to get into GCC could be subject to unfavorable pricing.
“During the suspension, WCS believes that Authorized Participants and other groups that make a market in shares of GCC will continue to trade the shares,” according to the statement. “However, there may be increases in the spread they quote between offers to buy and sell shares to allow them to adjust to the potential uncertainty as to when they might be able to purchase additional Creation Baskets. In addition, there could be a significant variation between the market price at which shares are traded and the shares’ net asset value, which is also the price at which shares can be redeemed by Authorized Participants in Creation Baskets.”
Specifically, when looking up an ETF, the ETF’s price may diverge from its intraday net asset value, or iNAV, which is typically updated every 15 seconds and should closely approximate the net asset value of an ETF throughout the day. Consequently, an ETF can trade above or below its iNAV, or also known as a premium or discount to its underlying portfolio’s value. If one is buying an ETF at a premium, an investor is essentially paying more than what the underlying basket is worth, or if one is buying at a discount, an investor is getting a deal over the NAV.
“Suspending share issuance inhibits specialized market makers, called authorized participants, from keeping ETF prices in line with the value of their assets. Investors can still buy and sell shares, though heavy demand can drive the ETF’s price to a premium over the indexes’ value,” according to the Wall Street Journal.
To this point, GCC’s on-screen price has not deviated wildly beyond its NAV.
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