Simplify Announces 1 for 20 Reverse Split for Simplify Tail Risk Strategy ETF (CYA)
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Insights
The approval of a reverse split by Simplify Asset Management Inc. for the Simplify Tail Risk Strategy ETF is a strategic move that can have several implications for investors and the fund's market perception. A reverse split is typically executed to boost the exchange-traded fund's (ETF) share price, which can make the ETF more attractive to investors who may perceive higher-priced shares as more valuable or legitimate. It can also help ensure compliance with exchange listing requirements regarding minimum share prices.
In the short-term, the reverse split does not alter the value of an investor's total holdings, but it does change the number of shares and the price per share, potentially affecting liquidity and bid-ask spreads. For long-term implications, it is essential to monitor if the reverse split leads to improved trading conditions and whether it can attract institutional investors, who might have previously avoided the ETF due to its low share price. It's also critical to consider that the redemption of fractional shares for cash could have tax consequences for investors, as these transactions may be considered as a sale and thus could trigger capital gains taxes.
The decision to implement a reverse split often reflects a broader market strategy to reposition an ETF within its competitive landscape. The Simplify Tail Risk Strategy ETF's reverse split may indicate an attempt to streamline its offerings and improve its marketability. From a market research perspective, it is crucial to assess the fund's performance relative to its peers and the overall market trends. If the ETF's performance has been lagging, the reverse split could be part of a broader restructuring effort to regain investor confidence.
Additionally, the impact on the ETF's liquidity post-reverse split will be an essential factor to watch. An increase in share price may deter small retail investors, potentially reducing trading volumes. However, it could also reduce volatility and enhance the appeal to larger investors looking for more stable investment vehicles. The market's reception of the reverse split will be telling, as it will reflect investor sentiment and confidence in the fund's management strategy.
From a taxation standpoint, the reverse split has implications that shareholders should be aware of, particularly concerning the redemption of fractional shares. When fractional shares are redeemed for cash, this transaction could be recognized as a taxable event. Shareholders need to understand that the cash received for these fractional shares might be subject to capital gains taxes if the redeemed shares have appreciated in value since their original purchase.
It is advisable for shareholders to consult with their brokers and tax professionals to fully understand the tax implications of the reverse split. The tax impact will vary depending on individual circumstances, including the shareholder's tax bracket, the holding period of the ETF shares and whether the shares have appreciated or depreciated in value. Proactive tax planning can help mitigate any potential tax liabilities arising from the reverse split.
ETF |
Reverse
|
Exchange |
Pre-Split
|
Post-Split
|
Simplify Tail Risk Strategy ETF |
1-for-20 |
NYSE Arca, Inc. |
82889N780 |
82889N483 |
Shares of the Fund will begin trading on the NYSE Arca, Inc. exchange on a split-adjusted basis on Monday February 12, 2024.
As a result of the reverse split, every 20 shares of the Fund will be exchanged for one share of the Fund. Accordingly, the total number of issued and outstanding shares of the Fund will decrease by
Illustration of 1-for-20 Reverse Split
Period |
# of Shares
|
Hypothetical NAV
|
Total Market
|
Pre-reverse split |
200 |
|
|
Post-reverse split |
10 |
|
|
Redemption of Fractional Shares and Tax Consequences for the Reverse Split
As a result of the reverse split, a shareholder potentially could hold a fractional share of the Fund. However, fractional shares cannot trade on the NYSE Arca, Inc. A shareholder's proportional fractional shares will be redeemed for cash and paid to the shareholder's brokerage account of record. However, depending on the policies of a shareholder's broker, shareholders who otherwise would be entitled to receive fractional shares may instead receive an amount of cash equivalent to the value of a fraction of one share to which such holder would otherwise be entitled. Please consult your broker about its policies regarding fractional shares. Such redemption may have tax implications for those shareholders, and a shareholder could recognize a gain or loss in connection with the redemption of the shareholder's fractional shares. Otherwise, the reverse split will not result in a taxable transaction for Fund shareholders. No transaction fee will be imposed on shareholders for such redemption.
"Odd-Lot" Share
Also, as a result of the reverse share split, CYA may have outstanding, with respect to certain of its authorized participants, aggregations of less than 25,000 shares required to make a redemption basket, or a so-called "odd-lot share". Each of CYA's authorized participants will be provided with a one-time opportunity to redeem any odd-lot shares resulting from the reverse share split.
ABOUT SIMPLIFY ASSET MANAGEMENT INC.
Simplify Asset Management Inc. is a Registered Investment Adviser founded in 2020 to help advisors tackle the most pressing portfolio challenges with an innovative set of options-based strategies. By accounting for real-world investor needs and market behavior, along with the non-linear power of options, our strategies allow for the tailored portfolio outcomes for which clients are looking. For more information, visit www.simplify.us.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Exchange Traded Funds (ETFs) before investing. To obtain an ETF's prospectus containing this and other important information, please call (855) 772-8488, or visit SimplifyETFs.com. Please read the prospectus carefully before you invest.
An investment in the fund involves risk, including possible loss of principal.
The fund is actively managed and is subject to the risk that the strategy may not produce the intended results. The fund is new and has a limited operating history to evaluate.
The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include (i) the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate, or index. Derivative prices are highly volatile and may fluctuate substantially during a short period of time. The use of leverage by the Fund, such as borrowing money to purchase securities or the use of options, will cause the Fund to incur additional expenses and magnify the Fund’s gains or losses. The earnings and prospects of small and medium-sized companies are more volatile than larger companies and may experience higher failure rates than larger companies. Small and medium-sized companies normally have a lower trading volume than larger companies, which may tend to make their market price fall more disproportionately than larger companies in response to selling pressures and may have limited markets, product lines, or financial resources and lack management experience.
Simplify ETFs are distributed by Foreside Financial Services, LLC. Simplify and Foreside are not related.
©2024 Simplify ETFs. All rights reserved.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240122414983/en/
Chris Sullivan
chris@craftandcapital.com
Source: Simplify Asset Management Inc.
FAQ
What is the announcement made by Simplify Asset Management Inc. regarding the Simplify Tail Risk Strategy ETF?
What will be the effect of the reverse split on the total number of issued and outstanding shares of the Fund?
How will the per share net asset value and next day's opening market price be affected by the reverse split?
What will be the impact of the reverse split on shareholders' total investment value?
When will the reverse split affect trading on the NYSE Arca, Inc. exchange?
