It appears that futures market exchange operators are getting frustrated with that of current crude oil ETF’s and their effects on markets during the current period of volatility. This morning, Horizons ETFs announced that its BetaPro Crude Oil 2x Daily Bull ETF (TSX: HOU) and BetaPro Crude Oil -2x Daily Bear ETF (TSX: HOD) would again be changing its investing strategy as a result of volatility.
Effective as of the 2:30 close today in the crude oil futures market, both HOU and HOD will rollover to that of the September crude oil contract, from its current position of that of the July contract. The change is a result of the continued volatility exhibited by the crude oil market, with near-term contract prices fluctuating heavily due to the involvement of ETF’s.
Additionally, the rollover on the 10th day of the month will no longer be automatically conducted, with the ETF manager now to conduct the move on an as-needed basis.
The change to the operation of the ETF is the result of discussions held between Horizons and its ETF counterparties. It’s largely due to current volatility of the market, and is being conducted as a means for the counterparty to reduce its risk related to negative crude oil pricing. If negative pricing were to occur, due to the nature of an ETF, there would be little path for the counterparty to recuperate any losses related to the operation of the ETF due to the inability of the ETF to demand investors cover the losses in negative pricing situations.
The issuance of new subscriptions of the ETF remains suspended.
As a general reminder, BetaPro Crude Oil 2x Daily Bull ETF (TSX: HOU) will be consolidating its equity on a 1 for 20 basis at the close of today’s market.
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