ProShares to debut merger arbitrage ETF on BATS Exchange

Dec 12th, 2012 | By | Category: Alternatives / Multi-Asset

The ProShares Merger ETF (MRGR), an innovative new fund from US-based alternative exchange-traded fund (ETF) specialist ProShares, is scheduled to list on the BATS Exchange on 13 December.

ProShares to debut merger arbitrage ETF on BATS Exchange

The new fund is designed to track the performance of the S&P Merger Arbitrage Index, a risk arbitrage strategy that exploits commonly observed price changes associated with M&A activity.

The new fund is designed to track the performance of the recently launched S&P Merger Arbitrage Index.

The S&P Merger Arbitrage Index seeks to model a risk arbitrage strategy that exploits commonly observed price changes associated with a global selection of publicly announced mergers, acquisitions or other corporate reorganisations.

The index is comprised of stocks that are active in pending merger deals. At any given time, a maximum of 40 companies that are currently targets in merger deals are represented in the index in long positions and a maximum of 40 companies that are currently acquirers for the same stock merger deals are represented in short positions.

“The goal of MRGR is to produce consistent, positive returns under virtually any market conditions,” said Michael L. Sapir, Chairman and CEO of ProShare Advisors. “We are pleased to offer access to a true merger arbitrage strategy delivered for the first time with the cost efficiency, transparency and liquidity of an ETF.”

“The S&P Merger Arbitrage Index aims to address the market’s continued interest in a merger arbitrage strategy,” said Vinit Srivastava, director of strategy indices at S&P Dow Jones Indices. “This offering expands our family of long-only merger arbitrage indices and further builds our capabilities in the alternative indexing space.”

The ETF listing also represents a milestone for BATS Global Markets as ProShares becoming the second ETF family to list on the BATS Exchange, following iShares’ BATS debut in January earlier this year.  BATS became a US primary listings venue in December 2011 and since then has sought to lure ETF providers to the exchange.

“We’re excited to welcome another respected exchange-traded fund family like ProShares to the BATS Exchange as our innovative approach to the ETF listings business continues to attract issuers and investors alike,” said BATS Global Markets President and CEO Joe Ratterman.

“The BATS Competitive Liquidity Provider (CLP) programme has proven to be effective at incenting tighter spreads and more size at the national best bid and offer for issues listed at BATS, which in turn lowers the cost of trading for institutional and retail investors. We look forward to implementing this programme for the ProShares Merger ETF,” he said.

The BATS CLP programme is a rewards-based programme designed to incentivise market makers to increase liquidity and create tighter quoted spreads for each listing on BATS. Through the programme, liquidity providers compete for a daily reward by posting competitive quotes in an exchange-traded product (ETP). Liquidity providers are rewarded based on their continuous daily quoted size at the national best bid and offer in the securities for which they are registered CLPs.

The new ProShares fund will likely compete against the IQ Merger Arbitrage ETF (MNA) from IndexIQ and the Credit Suisse Merger Arbitrage Index ETN (CSMA), both of which are listed on the NYSE Arca. These products follow a broadly similar strategy to that of the ProShares fund – essentially going long takeover targets and shorting acquirers.

Proposals to list three additional ProShares ETFs on BATS in 2013 have been filed with the Securities and Exchange Commission.

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