The first thing is that baskets are going to change from "in kind" to cash. That will not have an impact on anyone except for the APs. You don't have to worry about that, and it will not impact pricing on the secondary market.
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It is relatively painless for issuers to halt creations (the process is simply issue a press release and make an exchange notification), but halting redemptions is MUCH harder. We have seen a halt in creations before (TVIX). When the Egyptian market closed the ETF still traded...
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But they still filled redemptions. People need to be able to get out of the trade. This creates all sorts of pricing headaches - those redemptions occur at NAV, calculated by the fund admin.
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If a market maker feels unsure about the NAV calculation they are going to blow out their spreads, unless they are trying to just unload inventory on the market...
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Either way, the ETF will be dislocated from the market price, at least to some degree. This is not as scary as it sounds - essentially the ETF acts like a closed end fund...
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Now, ETFs that have some exposure to China - let's say a 25% allocation to an emerging market ETF - well now it is getting tricky. The issuer has some discretion and will be making the call in conjunction with their APs and market makers.
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If they halt creations, or if they are able to halt redemptions (which I doubt), they will have to put out a press release and an announcement on the primary listing exchange. BEFORE YOU TRADE ANY ETF WITH CHINA EXPOSURE, CHECK FOR A PRESS RELEASE.
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Better yet, call the capital markets desk of the issuer of the fund. Expect less liquidity, wider spreads, and some crazy swings... but the ETF will trade. Price discovery of the Chinese equity markets is going to move to the US markets, to the ETFs.
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Here is the NYSE closed creations page. Note that there are already several on here and these trade mostly fine. https://www.nyse.com/products/etp-closed-creation … I expect several additions to this list tomorrow. No market maker is going to want more Chinese stocks on their books if they can't sell them.
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They don't have to post anything if they decide to just do cash creates/redeems, and that is pretty much the best case here. Anyway, use limit orders, don't panic sell, and all that stuff... Happy trading.
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