Thank you for the prompt and detailed answer. Still pretty scary there is no payment after so long, especially with the fact that just today saw a news release that Leverage Shares ETPs account for 10% of LSE ETP issuances. Seems like that with major players like IBKR involved this would have been sorted out already.
Settlement and market functioning is a rather convoluted process, and quite obscure one.
I do not see any reason that would prevent the payment from happening, but people are at a loss for this extended delay.
Again, thanks. I looked at the prospectus and don’t see a specific market maker listed. I do see “authorized participants” as BNP Paribus and GWM Ltd and the designated broker dealer is GWM Ltd. Are these the “market makers”? BNP is large and established, don’t know much about GWM…
BNP Paribas is very likely the partner (the investment bank), GWM no idea, but likely a direct MM. More MM may be involved, but for small-ish ETPs like those I would imagine that there aren’t too many.
Now, once again, I do not know the underlying structure; but from an educated guess, the product would work like this;
LS defines the product (the ETP), and how it works; their partner (BNP) is the one actually creating the security. They will hold the underlying shares on their account, and create the ETP, ready to sell.
The MM is an intermediary, that will provide trading activity if market participant is low, and will interact with the partner for redemption/issuance of new ETPs shares.
If it’s who I think they are, they’re a mid-sized family office.
I guess those guys?
https://www.gwmholding.com/
MM doesn’t necessarily require being huge, but if indeed they are small-sized, it is likely to provoke more delays in case of product liquidation.
Actually for what its worth, it looks like GWM Ltd is a small Bermuda based affiliate of this entity, GWM Group Inc
According to the prospectus linked below (May 22, page 196), the same individual (Jose Gonzalez) is the sole shareholder of GWM Ltd (the broker dealer, Portfolio Manager and 2nd Authorized Participant), the Arranger (Leverage Shares Management Company) and the Determination Agent (Calculation Services LLC)
That’s terrible news
are other LS notes being redeemed aside from TWTR? how can anyone find out?
Musk talking about taking the company private doesn’t sound like a solid reason to close down the fund
edit: just saw the thread from last fall on the Peloton LS 3x fund was redeemed after a loss that exceeded the mount of margin used to create the 3x. but I am now more confused b/c TWTR never dropped more than 33% from a previous close
I can’t imagine the regulators haven’t checked this part out thoroughly. especially if this is same for all LS symbols.
Saw an article on that Gonzalez guy and he was a founder or co-founder of Global X but now lives in Spain. He think he probably knows what he’s doing.
But where’s the money now is still a question
As far as I can tell, i think it was mentioned in the thread very early on, it was a human decision to close the ETPs following the possibility of privatisation.
My personal take would be that unwinding these products at the last minute on a forced sale would be a tedious process. Given that these products are rather small in size, the management preferred to unwind them preemptively.
Can you tell me what you define as ‘small in size’? Trading volume or market cap or what?
LS comprises a very significant volume of all LSE trades. If they are going to preemptively close down funds due to rumors, for example, then I see this as a significant problem. Luckily I don’t own any of these shares (3xTWTR) but I’m really concerned about what this might mean for any other symbols.
What if you are short and the fund suddenly winds up? What happens then?
AUM. Sadly the product page for Twitter ETPs is already gone, but those were in the $20-100M AUM range. This is a tiny product, with a tiny market.
If you mean short the ETP, like any short position on a security that gets delisted; your position is sold out automatically.
If you mean a -1x Short ETP, exactly the same behaviour as this 3x Long; the underlying positions get closed down, and after unwinding the equivalent funds get distributed to the owners of the units.
Same goes on when a mutual fund or an ETF gets closed down, which happens quite often.
Hi all - apologies for the radio silence, been away from work for personal reasons.
About the payout: Looks like we finally have a resolution. I appreciate the efforts to make sense of all this, but it’s a lot simpler (and more frustrating) than it may seem, see below.
Leverage Shares (LS) decided to terminate its short & leveraged ETPs on Twitter on the wake of Elon Musk announcing its intention to take it over and delist it.
LS paid all termination amounts on the day of termination, as publicly announced. However, the settlement systems withheld the amounts due to some unmatched orders with our market makers. This created a high level of operational complexity that was out of our control and that responsible parties only identified weeks later. We have engaged with such parties to untangle these unmatched orders in an effort to release the cash to investors as soon as possible.
After significant time and effort reconciling the unmatched trades with service providers and settlement systems, we were able to release all outstanding amounts on 15 June 2022.
We deeply regret the anxiety this process has created on our investors and not having identified these issues sooner. Leverage Shares does not take lightly the termination of its ETPs and strives to provide the best possible trading experience to our investors.
Hi @Zergui - thanks for the explanation, but I’d like to shed some light on a few things:
- LS does not deal in derivatives (no swaps, aka “TRS” are being used). It’s much simpler: if we issue $1M worth of say, 2x Amazon, LS goes out and buys $2M worth of Amazon stock to be held as collateral. This means the exposure is 100% collateralised with the underlying instrument.
- The DMM (designated market maker) is an independent service provider that provides quotes throughout EU/UK trading hours. In the case of LS - this party is BNP Paribas. Having a DMM is a requirement of all regulated exchanges before any products can begin trading and, as you can imagine, undergo a lot of due diligence and scrutiny from all parties along the chain.
No, the redemption for ETPs on TWTR was a one-off decision as the acquisition seemed imminent. In case the deal does not go through, we may re-issue ETPs tracking the stock.
This is indeed one of the major risks in holding leveraged/inverse ETPs.
Leverage Shares ETPs come equipped with an “airbag mechanism” built into the administration of every product. This feature is triggered when the underlying stock loses more than x% (in long leveraged ETPs) or appreciates by more than x% (in short ETPs) during a trading session compared to previous day’s close. The respective trigger values are as follows:
| Leverage Factor | Trigger Value (x) |
|---|---|
| 5x | -10% |
| 3x | -16.67% |
| 2x | -25% |
| -1x | +50% |
| -2x | +25% |
| -3x | +16.67% |
→ However, an overnight collapse in the underlying stock could make the ETP worthless, as the stop-loss mechanism cannot be triggered outside of ETP trading hours. In such scenarios, the most a client can lose is the full value of his/her investment.
You are the derivative 
But yes, LS structure is a rather straightforward one, it could even get uglier 
Thanks for replying to this thread and confirming that the redemption payments have been issued on the 15th. as you pointed out – the delay caused a lot of anxiety but was also disconcerting for others who invest in other LS ETPs that may be subject to a sudden redemption based on the possibility of a takeover
but in the case of the example of 2X Amazon – how is the $2M collateralized 100% if you issue only $1M?
in other words–does LS actually buy $2M using LS cash reserves? or is BNP providing you with the 2:1 margin and therefore on the on the hook for $1M shares if Amazon goes bankrupt?
(and if not BNP – which broker is providing the margin so that we know who is guaranteeing the extra $1M)
it would be scary if that broker or MM is undercapitalized or over-leveraged in general (thinking REFCO for example)
The process was expected to be much smoother than what played out - and given the size of the Twitter-tracking ETPs (I believe it was about $2M in total across the -1x, 2x and 3x products) it was to avoid the ‘unwinding’ later on once the deal was actually closed. Rearview mirror always clearer than windshield…
Good question, I should’ve included this. The added financing is currently from IBKR and we are in the process of adding another prime broker (one of the most reputable investment banks - TBA soon). If AMZN stock goes bankrupt, any product packaged around it would be affected. This is the company-specific risk in any product tracking individual stocks.
The fact that these ETPs are daily rebalanced means they are marked to market each day. Example: 2:1 ratio of AMZN shares held as collateral for 2x Amazon ETP. If price of the underlying rises and/or there is an inflow of $ into the ETP, we’d have to purchase more of the underlying shares so that the 2:1 ratio is maintained at the end of the US close (& vice versa). This is monitored by the margin loan provider and helps ensure the correct leverage ratio is maintained (i.e. 2x, 3x, etc) each day.