Some ETP sponsors make shareholder satisfaction a top priority while others exhibit little concern for their shareholders. JPMorgan Chase & Co. (JPM) appears to be a member of the latter group. Last Friday (9/20/13), JPMorgan announced its intent to delist the KEYnotes First Trust Enhanced 130/30 Large Cap Index ETN (JFT), but owners will not get their cash back because it isn’t redeeming the notes.
The firm is also shuttering two other ETNs, the JPMorgan Double Short U.S. 10 Year Treasury Futures ETN (DSXJ) and the JPMorgan Double Short U.S. Long Bond Treasury Futures ETN (DSTJ), but these notes will be redeemed allowing owners to receive full cash payments.
According to the press release the last day of listed trading for the KEYnotes First Trust Enhanced 130/30 Large Cap Index ETN is set for “on or about” October 9, 2013. Given the lack of precision in the delisting date, I advise everyone to dispose of your JFT holdings on the open market well ahead of the October date. The ETN was quoted with a bid/ask spread of $39.64/$65.48 earlier today, so it is imperative to use a limit order.
As illiquid as JFT is now, it will get significantly worse after the delisting. JPMorgan decided to not redeem these notes and return the $4 million in assets to the owners. Instead, JFT will become an “over the counter” traded security after its delisting. Lack of liquidity is already a major concern as the ETN recorded zero volume the past nine trading days. If you think it’s hard to sell JFT now, just think how much harder it will be without a listing.
The 0.95% tracking fee and $4 million in assets implies JPMorgan is receiving about $38,000 per year in fees. If the asset level remains, then this will total $380,000 before the notes mature in 2023, at which time it will be required to return the cash to shareholders. Without having to pay listing fees, perhaps JPMorgan sees this as a profitable venture. However, it would appear it is not including the cost of bad press and customer dissatisfaction. Maybe it is hoping no one will associate an ETN named “KEYnotes First Trust” as being a JPMorgan product.
This isn’t the first time JPMorgan has given ETN owners the short straw. Back on June 12, 2009, the firm pulled the same stunt by delisting and not liquidating its BearLinx Alerian MLP ETN (former ticker BSR). That maneuver left BSR shareholders hanging and created many unhappy JPMorgan customers.
JPMorgan is taking a higher road with its two other announced closures. October 2, 2013, will be the last day of trading for the JPMorgan Double Short U.S. 10 Year Treasury Futures ETN (DSXJ) and the JPMorgan Double Short U.S. Long Bond Treasury Futures ETN (DSTJ). They will be called for redemption the following day, and owners should have their cash within a day or two. DSXJ has about $10 million in assets it will be returning to owners and DSTJ has about $7 million, which makes the $4 million JPMorgan is keeping from JFT investors even more confusing.
Disclosure (Covering writer, editor, and publisher): No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.