A $576 Billion Stock-ETF Juggernaut Hit by Extreme Dislocations #NewsETFs

(Bloomberg) — One of the largest exchange-traded funds in the world was left at the widest premium to its underlying holdings since 2008 at the end of Wednesday’s historic session.

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In another sign of the frantic trading on Wall Street, the $576 billion SPDR S&P 500 ETF Trust, or SPY, closed roughly 90 basis points above its net-asset value on a day when it surged 10.5% — the most in 16 years — data compiled by Bloomberg show. For comparison, SPY’s average dislocation to its NAV over the past decade is just a fraction of a basis point. The early Covid months of 2020 also saw it trade above or below its net-asset value, though none of those gaps were as wide as where Wednesday’s ended up.

Traders frantically covering bearish trades likely contributed to the flood of capital into SPY that afternoon. The fund, which on average has traded roughly 56 million shares a day over the past year, is known for its liquidity. But on Wednesday, closing-auction volumes were running roughly 300% higher than usual and likely a factor in driving up the premium, according to Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors.

“That’s just a function of the ETF, of SPY — it’s a significant liquidity vehicle for a large swath of traders and investors to rotate into,” he said in an interview. “Given the sizable moves that we saw yesterday intraday, but also heading into the close, there was just a large balance of buy orders coming in to mark the close that then pushed the price up above.”

It’s important to remember the context in which the frenzied trading happened: market moves have been extreme in recent days, he added. “It’s a feature of SPY to have the ability to absorb that much liquidity in two-way trading volumes.”

The S&P 500 on Wednesday staged a historic rebound after President Donald Trump said he would pause tariffs on some trading partners. More than 241 million shares of SPY changed hands.

“Yesterday’s moves were so extreme that even the world’s most liquid ETF was not immune to an impact as the closing auction traded well above its fair value,” said Dave Mazza, chief executive officer at ETF issuer Roundhill Investments. “When SPY sees moves like this, you know it’s a wild day in the markets.”