By Patrick Watson
Effective Thursday morning two of the DirexionShares ETFs began trading with a reverse split. Daily Financial Bull 3X Shares (FAS) split at 1-for-5 while Daily Financial Bear 3X Shares (FAZ) had a 1-for-10 split. For every five shares of FAS you owned as of Wednesday’s close, you now have just one share which is worth five times as much. Likewise for FAZ, except the ratio is 1:10.
In a press release (pdf), Direxion says it expects trading costs for FAS and FAZ to decline as a result of this action. They think bid-ask spreads will narrow as a percent of the value traded, and that investors who pay commissions on a per-share basis will face smaller fees. Both are probably true.
For most investors this should be a non-event. DirexionShares has notified brokers and data providers so any disruptions are likely to be minimal. There is one potential snag: if you previously owned FAS or FAZ in a quantity that was not a multiple of five or ten, you will receive fractional shares from the split which cannot be traded. Direxion will redeem those fractional shares for cash at the July 8 closing split-adjusted price. If this results in your recognizing a gain or loss, it will be a taxable event for you. Otherwise, the split has no tax implications for FAS and FAZ investors.
Disclosure: No positions