Nasdaq Proposal Targets Fair Value for ETF Trades

ETF Trends

Nasdaq OMX Group’s (NDAQ) proposed “iNAV Pegged Order” would allow exchange traded fund investors to place a type of limit order on trades based on a fund’s net asset value.

The new order type would put in orders “pegged” to U.S. equity ETFs’ most recent iNAV, writes Rosalyn Retkwa for Institutional Investor. [Digging Deeper Into Nasdaq’s ETF Trading Proposal]

“As the iNAV changes, so move the iNAV Pegged Orders,” according Nasdaq’s SEC filing. “A Pegged Order may have a limit price beyond which the order shall not be executed.”

“The iNAV Pegged Order type would allow certainty of execution with a greater correlation to the ETF’s fair value for those seeking to invest on a more informed basis,” Nasdaq added.

“I think it’s a good idea,” Michael Rawson, an ETF analyst at Morningstar in Chicago, said in the article. “It’s like a limit order, but pegged to the current iNAV of a fund, and that makes sense.”

When buying or selling ETFs through a broker, investors can use a market order or a limit order. A market order is designed to fill immediately at the best available current price. A limit order is designed to fill at a specific price or better, and is not guaranteed to execute at the order price, although that’s not necessarily a bad thing. [Caution: Use Limit Orders with ETFs]

“Most of the complaints about the ETF market are that market orders get screwed,” Stephen O’Grady, who was the partner in charge of ETF trading at Kellogg Capital Markets, said in the article. “Don’t put market orders in, and if you do, be prepared to get a price you’re not happy with.”

For more information on the ETF industry, visit our current affairs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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