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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: aknahow who wrote (52192)	2/1/2006 12:49:01 AM
From: ild	Read Replies (1) \| Respond to of 110194

<<<First I don't consider the capture of premiums by participating broker/dealers to be arbitrage. There is no risk for them. They are guaranteed to get shares a zero or no premium by delivering gold.>>> George, we've discussed that before, but I'd still like to get back to it. -g- What they do is called riskless arbitrage. investorwords.com Yes, to execute GLD arbitrage you need to be very connected to gold spot market. I guess many London banks may be able to do it. In fact what we discussed in case of GLD is what I call "riskless ETF arbitrage". The whole idea in ETF arbitrage is that you don't need to wait for the markets to converge. You use daily redemption/creation of ETF shares for this purpose. I've seen similar cases with other ETFs. In April 2005 when the market abruptly fell hard there were big redemptions in ETFs. Reason: ETF can be shorted on downticks, so they were being shorted and were trading at a discount. Other people would exploit this by buying ETFs at discount, selling constituting shares short and redeeming ETF shares with ETF custodian. This in turn caused unavailability of many ETF for shorting as massive amounts of them were redeemed. Message 21336315 Message 21275732