Q: Who participates in a reverse or forward split?
A: Anyone who owns shares of an ETF affecting a reverse or forward split at the close of the markets on the record date will participate in the split.
Q: Will a reverse or forward split affect the total value of my investment?
A: No. The total value of your investment will not change. A split simply means there will be a reduction (reverse split) or addition (forward split) in the number of the ETF’s shares outstanding and a proportionate increase (reverse split) or decrease (forward split) in the ETF’s price per share. This means that your total number of shares owned will change; however, the aggregate value of those shares will remain the same as before the reverse or forward split. The exception to this is the case when, as a result of a reverse split, a shareholder receives fractional shares of an ETF. Fractional shares cannot trade on the ETF’s listing exchange. Thus, an ETF will redeem for cash a shareholder’s fractional shares at the ETF’s split-adjusted net asset value (NAV) after the close of the markets on the record date.
Q: How many shares will I receive and how will my price per share be adjusted after a reverse or forward split?
A: It depends on the split ratio for the ETF. Here are a couple of examples.
The table below illustrates the effect of a hypothetical 1-for-5 Reverse Split
|Period||# of Shares Owned||Hypothetical NAV||Total Market|
The table below illustrates the effect of a hypothetical 5-for-1 Forward Split
|Period||# of Shares Owned||Hypothetical NAV||Total Market|
Q: Will forward or reverse splits create taxable events for me?
As a result of a reverse split, a shareholder of the ETF could potentially hold a fractional share. However, fractional shares cannot trade on the ETF’s listing exchange. Thus, an ETF will redeem for cash a shareholder’s fractional shares at the ETF’s split-adjusted NAV after the close of markets on the record date. Such redemptions could cause a shareholder to realize a gain or loss. Otherwise, a reverse split will not result in a taxable transaction for holders of ETF shares. No transaction fee will be imposed on shareholders for such redemptions.
Forward splits will not result in a taxable transaction for holders of the ETF’s shares and no transaction fees will be imposed on shareholders in connection with forward share splits.
Q: Will splits affect trading availability or liquidity?
A: Shares after splits are expected to trade with normal availability and liquidity. We do not expect splits to affect availability or liquidity.
Q: Why does Direxion decide to split ETFs?
A: Direxion believes it is in our shareholders’ best interest to affect forward or reverse splits in order to keep an ETF’s price in a convenient trading price range. In the instance of a reverse split, Direxion expects the costs associated with trading its ETFs to decrease due to the split. The bid-ask spread is expected to decline as a percentage of the price paid per share. For instance, a penny spread on a $5 stock is 20 basis points1 (.2%), while a penny spread on a $50 stock is 2 basis points (.02%). Further, commissions charged by brokers who assess their clients on a per share basis will be smaller as investors will need to buy or sell fewer shares to meet their investment goals. In short, Direxion believes that the reverse splits will adjust the share prices to a more cost-effective level for an ETF’s shareholders. In the case of forward splits, Direxion expects the reduction in the NAV will be beneficial for shareholders as the price per shares has gotten too high to be convenient for traders.
1 A basis point can be summarized as follows: 1% change = 100 basis points. 0.01% = 1 basis point
Q: Will a split affect limit and GTC orders?
A: Yes. Splits will cancel limit and GTC orders. Investors should replace these orders and adjust them to the post-split price. Please note, splits may also affect orders for options as well.
FOR INFORMATION: 866.476.7523 | [email protected] | DIREXION.COM
This material is for information purposes only and does not constitute investment, legal or tax advice. You should contact your legal or tax advisor regarding your specific tax situation prior to taking any action based upon this information.
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Investing in a leveraged or inverse ETFs may be more volatile than investing in broadly diversified funds. The use of leverage by an ETF increases the risk to the ETF. Leveraged or inverse ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment. The leveraged or inverse ETFs are not designed to track their respective underlying indices over a period of time longer than one day.
Direxion Shares Risks - An investment in the ETFs involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration that results from an ETF’s investments in a particular industry or sector, which can increase volatility. The leveraged and inverse ETFs utilize derivatives, such as futures contracts and swaps which are subject to market risks that may cause their price to fluctuate over time. The leveraged and inverse ETFs do not attempt to, and should not be expected to, provide returns which are a multiple of the return of their respective index for periods other than a single day. The leveraged and inverse ETFs may also subject to leverage, correlation, daily compounding, market volatility and risks specific to an industry or sector. The non-leveraged ETFs are subject to certain risks, including imperfect index correlation and market price variance, which may decrease performance. The non-leveraged ETFs may invest in a relatively small number of issuers and, as a result, be subject to greater risk of loss with respect to its portfolio securities. The non-leveraged ETFs may experience greater fluctuation in its net asset value as compared to other investments. The non-leveraged ETFs may be appropriate for investors with a long-term investment time horizon, who primarily seek capital growth, and who are able to tolerate periods of prolonged price declines. Please read each ETF’s prospectus for a more complete description of the investment risks. There is no guarantee that an ETF will achieve its investment objective.
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