BEWARE OF EXCHANGE-TRADED PRODUCTS
- posted: May 19, 2020
Exchange-traded products (“ETPs”) provide different types of exposure to the oil market through product structures, which many investors and investment professionals do not understand. The performance of these products may be linked to unfamiliar indices or reference benchmarks, making them difficult to comprehend. For example, several ETPs are designed to track daily price movements of specified crude oil futures contracts, such as those on West Texas Intermediate (“WTI” or “oil-linked ETPs”). Due to recent events in crude oil markets, combined with the manner in which the products are structured, several oil-linked ETPs have experienced significant volatility and lost a substantial percentage of their value, with at least one ETP liquidating and another forced to halt the issuance of new shares and adjust its investment objective. The June 2020 WTI futures contract price fell 43% to close at $11.57 a barrel only a day after the May 2020 futures contract dove into negative territory, settling at minus $37.63 per barrel.
The volatility of ETPs exists outside the world of oil-linked ETPs. Commodity-linked products, such as natural gas ETPs, as well as volatility-linked ETPs, share the same features and have been the subject of prior FINRA guidance and regulatory action. According to FINRA’s “experience with complex products broadly, some investors—as well as investment professionals recommending them—may not understand oil-linked ETPs’ investment objectives, how their performance relates to the “spot” (or cash) price of oil, or how the different product structures can impact their performance and the investor experience.”
If you invested in ETPs and have incurred losses, please call David Harrison, Esq. at (310) 499-4732 for a free consultation. Mr. Harrison, a former NYC assistant district attorney, and in-house Morgan Stanley attorney has been in private practice representing defrauded investors for the last 20 years.