On July 8, the Direxion Daily Financial Bull 3x Shares (FAS) had a 1-for-5 reverse split and the Direxion Daily Financial Bear 3x Shares (FAZ) had a 1-for-10 reverse split. Shares in both FAS and FAZ began trading on a split-adjusted basis the following day.
Accordingly, an owner with 100 shares of FAS before the split would have 20 shares after the split. In the case of FAZ, an owner of 100 pre-split shares would have 10 post-split shares.
The reverse splits were aimed at facilitating trading in shares of FAS and FAZ. Prices of both funds had fallen to such low levels that the costs of bid/ask spreads were becoming a financial impediment.
Any fractional shares resulting from the splits were automatically redeemed for cash at the respective fund’s net asset value at the end of trading on July 8. Fractional shares do not trade on NYSE Arca.
According to Direxion, the redemption of fractional shares could cause a shareholder to realize a capital gain or loss. However, the reverse split itself will not cause a taxable event for FAS or FAZ owners and there’s no transaction fee charged for the redemption.
Ron DeLegge is the San Diego-based publisher and editor of ETFguide.com and the radio host of the “Index Investing Show,” which is broadcast nationally on Saturday afternoons and can be heard online at www.indexshow.com. Ron served as an investment and financial advisor for 11 years.