The combination of market volatility and the methodology of Direxion Shares Daily Financial Bull (FAS) ETF and Direxion Shares Daily Financial Bear (FAZ) has eroded the per-share value of these ETFs, prompting the issuer to notify investors of reverse splits planned for July 8.The low price of FAZ and FAS, approximately $5 and $8 respectively, has caused a surge of volume in the funds in recent months as investors require more shares to meet intraday hedging objectives. The pending reverse split of the shares should lower transaction fees for frequent investors while discouraging investors who should avoid the funds in the first place.
Thus, FAS and FAZ will redeem for cash a shareholder's fractional shares at the Funds' respective split-adjusted NAVs as of July 8, 2009. Such redemptions could cause a shareholder to realize a gain or loss in connection with the redemption of the shareholder's fractional share. Otherwise, the reverse split will not result in a taxable transaction for holders of FAS or FAZ shares. No transaction fee will be imposed on shareholders for such redemption.
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 points (0.2%), while a penny spread on a $50 stock is 2 basis points (0.02%). 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 efficient level for the Funds' shareholders.