Direxion, a leading provider of leveraged exchange-traded funds (ETFs), has announced plans to implement reverse splits for four of its funds. The affected ETFs include the Direxion Daily Gold Miners Index Bear 2X Shares (DUST), Direxion Daily Technology Bear 3X Shares (TECS), Direxion Daily Dow Jones Internet Bear 3X Shares (WEBS), and Direxion Daily FTSE China Bear 3X Shares (YANG).
The reverse splits are scheduled to take effect after the close of markets on November 1, 2024. DUST, TECS, and WEBS will undergo a 1-for-10 reverse split, while YANG will see a more significant 1-for-20 reverse split. These actions will result in a substantial decrease in the total number of outstanding shares for each fund, ranging from 90% to 95% reduction.
As a result of the reverse splits, the per-share net asset value (NAV) and the next day’s opening market price for these funds will increase proportionally. For instance, a 1-for-10 split will lead to a tenfold increase in the per-share NAV and market price, while a 1-for-20 split will result in a twentyfold increase.
It’s important to note that the total market value of shares outstanding will remain unaffected by these splits, except for the redemption of fractional shares. Investors holding these ETFs should be aware that they may end up with fractional shares following the reverse splits. Since fractional shares cannot be traded on the NYSE Arca, Direxion will redeem these for cash at the fund’s split-adjusted NAV as of the record date.
The reverse splits may have tax implications for shareholders, particularly concerning the redemption of fractional shares. Investors could potentially recognize a gain or loss in connection with this redemption. However, the reverse splits themselves will not result in a taxable transaction for fund shareholders.
Direxion has also announced changes to the CUSIP numbers for these funds, which will take effect on November 4, 2024. The new CUSIPs are as follows: DUST (25461A478), TECS (25461A494), WEBS (25461A486), and YANG (25461A460).
These reverse splits are significant for investors and traders who hold or frequently trade these leveraged ETFs. The reduced number of shares outstanding and higher share prices could potentially impact liquidity and trading dynamics. Additionally, the splits may affect option contracts and other derivatives based on these ETFs.
It’s crucial for investors to understand that leveraged ETFs like those offered by Direxion are designed for short-term trading and carry significant risks. These funds seek daily leveraged investment objectives and are not suitable for all investors. They are primarily intended for sophisticated investors who actively manage their investments and understand the risks associated with leverage.
As the ETF market continues to evolve, actions like these reverse splits highlight the ongoing management and adjustments required to maintain the efficiency and effectiveness of leveraged products. Investors in these Direxion funds should closely monitor their holdings and consult with financial advisors to understand the full implications of these changes on their investment strategies.