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Capping AMJ Shares

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JPMorgan Chase is capping the maximum number of Alerian MLP Index ETNs (AMJ) authorized for issuance at 129 million shares. The company announced the change, to limit its swap exposure and the outsized demand for shares in high yielding MLPs held within AMJ.

As a result of the move, the maximum number of AMJ shares authorized for issuance would be equal to $4,694,310,000, which is calculated by multiplying the $36.39 price of the ETN as of the June 13, 2012 market close. Currently, AMJ has $4.19 billion in assets and has declined 4.60% since the beginning of the year.

Unlike traditional ETFs, exchange-traded notes are registered as debt instruments that have credit issuer risk. ETNs typically pay a return linked to the performance of a single security or index.

As of June 15, AMJ traded at a modest 0.17% premium to its underlying assets, but that could change. If AMJ nears or surpasses its share issuance cap, the share price could begin trading at a premium to its underlying indicative value because of supply/demand imbalances. Similar operational problems have been experienced by other ETNs like the VelocityShares Daily 2x VIX ST ETN (TVIX) and the iPath DJ-UBS Natural Gas TR Sub-Idx ETN (GAZ).

Any stumbles for AMJ, could be a boon to competing products like the ALPS Alerian ETF (AMLP), which is linked to the same MLP index.


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